Inflation in Pakistan continued its gradual downward trajectory, reflecting easing price pressures and improving macroeconomic conditions. Consumer Price Index (CPI) inflation was recorded at 5.6 percent on a year-on-year basis in December 2025, lower than 6.1 percent recorded in the previous month. Compared to December 2024, when inflation stood at 4.1 percent, the latest data indicates relative price stability despite lingering cost pressures in certain segments of the economy.
On a cumulative basis, average inflation during the first half of FY2026 showed a marked improvement. During Jul–Dec FY2026, average CPI inflation stood at 5.2 percent, significantly lower than 7.2 percent recorded during the same period last year. This moderation reflects the impact of fiscal discipline, improved supply conditions, and relatively contained demand-side pressures.
Analysis of year-on-year inflation contributors reveals that price increases were led by the education sector, which recorded inflation of 9.9 percent. This was followed by health at 7.7 percent and non-perishable food items at 7.5 percent, indicating persistent pressures in essential services and staple goods. Housing, water, electricity, gas and fuels also contributed to overall inflation, registering an increase of 6.9 percent, reflecting adjustments in utility-related costs.
Other notable contributors included clothing and footwear, which recorded inflation of 6.2 percent, while restaurants and hotels saw prices rise by 5.6 percent. Transport inflation stood at 4.9 percent, reflecting relatively stable fuel prices and transport costs compared to earlier periods. Alcoholic beverages and tobacco recorded an increase of 3.9 percent, while furnishing and household equipment maintenance rose by 3.4 percent. Communication costs remained largely contained, increasing by only 0.6 percent on a year-on-year basis.
In contrast, a decline in prices was observed in certain categories, providing some relief to consumers. Perishable food prices declined sharply by 20.1 percent on a year-on-year basis, reflecting improved supply conditions and seasonal factors. Recreation and culture also recorded a decline of 4.3 percent, contributing to the overall moderation in headline inflation.
Short-term price trends, as measured by the Sensitive Price Indicator (SPI), further support the easing inflation outlook. For the week ending January 22, 2026, the SPI declined by 0.48 percent, indicating a weekly reduction in prices of essential items. During the week, prices of 12 items increased, while 11 items recorded a decline. Prices of the remaining 28 items remained unchanged, suggesting relative stability in the cost of essential goods.
Overall, the gradual decline in inflation reflects improved macroeconomic management and easing supply-side constraints. While price pressures persist in sectors such as education, health, and utilities, the downward trend in headline inflation and weekly indicators points toward a more stable inflation environment during the ongoing fiscal year.
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