Pakistan’s consumer price index (CPI) inflation recorded a significant moderation in August 2025, cooling to 3.0 percent year-on-year compared to 4.1 percent in July and a much higher 9.6 percent in the same month last year. This decline represents one of the sharpest year-on-year slowdowns in recent months and comes as a relief for households and policymakers struggling with price pressures over the past two years.
Data released by the Economic Adviser’s Wing shows that overall CPI inflation during July–August FY2026 averaged 3.5 percent, sharply down from 10.4 percent during the corresponding period of the previous year. On a month-on-month basis, inflation also declined by 0.6 percent in August, a reversal from the 2.9 percent increase seen in July and the 0.4 percent uptick recorded in August 2024.
The moderation in prices was driven primarily by a sharp drop in perishable food items, which recorded a year-on-year decline of 21.6 percent. This steep fall offset increases in other categories and provided a cushion for consumers facing cost pressures in essential services. Recreation and culture also saw a contraction of 2.3 percent.
Despite the overall decline, certain categories continued to post higher inflation, reflecting structural challenges in services and imported goods. Education costs rose by 10.9 percent, followed closely by health services at 10.6 percent. Clothing and footwear prices climbed 8.1 percent, while restaurants and hotels saw a 7.2 percent increase. Housing, water, electricity, gas, and fuels were up 3.6 percent, and household furnishings rose by 3.5 percent. Alcoholic beverages and tobacco also registered a 3.6 percent increase, while transport costs grew 2.5 percent and communication remained marginally higher at 0.5 percent. Non-perishable food items, although stable compared to last year’s levels, still showed a modest rise of 1.9 percent.
The Sensitive Price Indicator (SPI), which tracks the weekly movement of essential commodities, also reflected easing pressures. For the week ending September 25, 2025, the SPI declined by 0.16 percent. Out of the 51 items monitored, prices of 17 items increased, 11 items decreased, and 23 remained unchanged, indicating a mixed but overall manageable trend in consumer prices.
Economists believe that the current moderation in CPI inflation provides breathing space for both consumers and the State Bank of Pakistan (SBP). With inflation significantly lower than last year, there is a possibility of a more accommodative monetary policy stance in the months ahead, provided external shocks remain contained. The decline in food prices, particularly perishables, has been the biggest contributor to the improved inflation outlook, though risks linked to global energy prices and exchange rate fluctuations remain.
For households, the relief in food inflation is particularly significant given the high share of food in overall consumption. However, rising costs in education, health, and housing continue to strain budgets, signaling that the inflationary challenge has shifted toward services and essential utilities.
Going forward, the government’s ability to manage supply chains and stabilize utility costs will be key to sustaining this downward inflation trend. Any disruptions from global commodity markets or climate-related shocks could reverse the gains seen in recent months.
With CPI inflation down to 3.0 percent in August 2025, Pakistan’s economy finds itself at an important juncture. The sharp slowdown marks progress in stabilizing prices, but structural cost pressures across essential services mean inflation management will remain a top policy priority through FY2026.
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