Pakistan's annual inflation is expected to significantly rebound in August 2026, after temporarily dipping into single digits in July. The Finance Division projects consumer inflation to hit 10%-11% in August, up from 9.2% in July. Independent estimates from AKD Research and Topline Securities further support this trend, forecasting headline inflation at 11.4% and 10.75%-11.25% respectively. This increase is primarily attributed to rising food and fuel prices, alongside a low base effect from August 2025 when inflation was 2.99%.
The primary drivers of this inflationary pressure include global energy prices, geopolitical uncertainty, and the impact of new US duties of 10%-12.5% on Pakistani goods effective July 24. Domestically, heavy rains and potential floods threaten agricultural output, contributing to higher food prices. Specific commodity price increases are notable, with onion prices expected to jump 59.5% month-on-month, and wheat and wheat flour also seeing increases. Transport costs are also a significant factor, with the index projected to rise 19.6% year-on-year by AKD Research, driven by higher motor spirit and high-speed diesel prices.
Despite these inflationary concerns, Pakistan's economy shows some areas of strength. The fiscal deficit narrowed to a 20-year low of 2.6% of GDP in FY2027, down from 5.4% a year prior. Revenue climbed 9.9% to $19,773.9 billion, and spending decreased by 4.5% to $23,087.4 billion. Exports also saw growth, with goods and services exports rising to $3.94 billion in July 2026, and remittances increasing by 13% year-on-year to $3.63 billion, contributing to a reduced current account deficit of $328 million. However, the anticipated inflation rate of 10.75%-11.25% in August suggests that real interest rates will remain relatively low, around 25-75 basis points, well below the historical average of 200-300 basis points, which could keep the State Bank of Pakistan wary about its monetary policy.
