Pakistan’s inflation rate saw a significant dip in January 2025, clocking in at 2.4% year-on-year (YoY), according to the latest data from the Pakistan Bureau of Statistics (PBS). This represents a sharp decrease compared to December 2024, when inflation stood at 4.1%. The latest figure is the lowest inflation reading in over nine years, marking a welcome shift in the country’s inflationary pressures.
On a month-on-month (MoM) basis, the Consumer Price Index (CPI) rose by 0.2% in January 2025, up from 0.1% in December 2024. However, it’s worth noting that January 2024 had seen a higher MoM increase of 1.8%. This recent drop in inflation comes as a relief for Pakistan, which has struggled with high inflation in recent years, including a record surge to 38% in May 2023.
Experts attribute the easing inflation primarily to a high base effect from last year, along with a decline in food inflation, which has been a significant contributor to overall price pressures. With food prices stabilizing, inflationary pressures across various sectors have also eased, contributing to the favorable data. The average CPI for the first seven months of fiscal year 2025 (7MFY25) stands at 6.5%, a drastic reduction from the average of 28.7% recorded during the same period in the previous year.
This recent inflation reading is part of an ongoing trend of declining price pressures in Pakistan. In the last year, the country has experienced persistent inflation, a challenge that has severely impacted consumers and the broader economy. In response, the government and central bank have implemented various policy interventions aimed at curbing inflation. These measures have begun to show results, with consumer price inflation on a clear downward trajectory.
A major factor in this inflation slowdown has been the reduction in the policy rate by the State Bank of Pakistan (SBP). The SBP’s Monetary Policy Committee (MPC) recently cut the key policy rate by 100 basis points (bps) to 12%, marking the sixth consecutive rate cut since June 2024 when the rate was at a significantly higher 22%. This policy move is designed to stimulate economic activity and reduce inflationary pressures by making borrowing more affordable and easing financial strain on businesses and consumers alike.
SBP Governor Jameel Ahmad had previously suggested that inflation would continue to ease into January before slightly rising in the months ahead. Despite these modest upticks expected in the future, the country’s inflationary outlook remains far more manageable compared to the exceptionally high levels witnessed last year.
While the CPI reading of 2.4% came in lower than the expectations of several analysts and brokerage houses, projections were already indicating a clear downtrend. JS Global had predicted an inflation reading below 3% for January 2025, forecasting 2.8%, with the sharp disinflation trend continuing despite the slight monthly uptick. Similarly, Ismail Iqbal Securities Limited had projected a CPI of 2.9%, a significant drop from the 28.3% recorded in January 2024, further signaling a strong cooling of price pressures.
The latest data also reveals notable differences in urban and rural inflation trends. Urban inflation decreased to 2.7% YoY in January 2025, compared to 4.4% in December 2024 and 30.2% in January 2024. On a MoM basis, urban inflation rose by 0.2%, a slight increase from the -0.1% recorded in December 2024. In rural areas, inflation stood at 1.9% YoY, a notable reduction from 3.6% in December 2024 and 25.7% in January 2024. Rural inflation also increased by 0.2% on a MoM basis, a smaller rise compared to the 0.3% increase in the previous month.
This broad-based inflation reduction, both in urban and rural areas, reflects improvements across Pakistan’s diverse economic landscape. The government’s and central bank’s continued focus on controlling inflation, alongside lower food prices, is expected to sustain this downward trajectory in the near term.
The latest inflation data paints a positive picture of Pakistan’s economic outlook for 2025, as the country works to stabilize prices and foster a more sustainable growth trajectory after a period of economic volatility. While inflation is expected to rise slightly in the coming months, January’s data gives hope that the worst of the inflationary crisis may be behind Pakistan.