Inflation in Pakistan is not merely an economic statistic; it is a social condition, an ambient pressure that touches every household and recalibrates every decision from groceries to schooling. Yet in recent months, official data has been accompanied by a paradoxical cheer. Consumer Price Index (CPI) inflation has slowed, with the Pakistan Bureau of Statistics reporting headline inflation easing from peaks above 38 percent in 2023 to single digits by mid-2025. In June, CPI stood at 3.2 percent, down from 3.5 percent the previous month, marking the lowest reading in nearly four years. To the casual observer, this would suggest a reprieve. For the average citizen, it feels like a mirage.
The sleight of hand lies in the nature of disinflation. Prices are not falling; they are simply rising more slowly than before. A household that paid 100 rupees for flour last year may now pay 150, and though the monthly increase has softened, the baseline has permanently shifted upward. This distinction between disinflation and deflation is critical, but it is rarely spelled out in official discourse. Instead, a government eager to demonstrate stability leans on the headline CPI, a number as political as it is statistical.
The construction of that number has long been contentious. The CPI basket, updated to a 2015–16 base, weights 356 goods and services, drawing on price collection from 47 cities across the country. Yet the weights tell their own story. Fuel, for instance, is assigned less than one percent of the basket, while wood and charcoal occupy more than four times that share. In a country where urban transport is petrol-driven and rural households are increasingly reliant on gas cylinders, the allocation is out of step with lived consumption. Electricity too is measured through a lifeline tariff of up to 50 units, a subsidised bracket that significantly understates the burden faced by middle-class families consuming two or three times that level. The methodology is internally consistent but socially skewed.
The result is a persistent disconnect between official inflation and household sentiment. In surveys, more than 70 percent of Pakistanis report feeling worse off even during quarters when inflation moderates. This gap reflects not only flaws in CPI weights but also the uneven geography of inflation. Urban centers with access to subsidised utilities and competitive retail chains experience a different price environment than rural districts dependent on middlemen for food and exposed to full fuel costs. A national average smooths over these differences but does little to inform policy for the hardest hit.
The fiscal overlay compounds the problem. In 2024–25, the government raised petroleum levies by 20 percent and introduced a carbon tax, even as the exchange rate weakened. These measures injected imported inflation into domestic prices, particularly for transport and food distribution. At the same time, debt servicing absorbed close to 65 percent of government revenues, leaving little scope for subsidies or price-stabilisation measures. The paradox was stark: even as CPI data suggested relief, household budgets were being squeezed by tax-induced price rises.
Digitalisation offers a potential corrective that remains underused. With millions of mobile wallet transactions and a biometric database that captures granular citizen information, Pakistan has the infrastructure to map real consumption patterns more accurately than its current survey-based model allows. Other economies have leveraged point-of-sale data and digital billing streams to refine inflation tracking in near-real time. Pakistan continues to rely on enumerators visiting selected markets in fixed cities, a process vulnerable to both lag and sampling distortion.
The credibility gap matters. Investors and creditors gauge macroeconomic stability partly on inflation trajectories. A government that trumpets moderation may impress on paper, but if bond markets and households alike perceive the numbers as detached from reality, the policy dividend evaporates. More importantly, distorted inflation data misguides monetary policy. The State Bank of Pakistan has been lauded for aggressive tightening, with policy rates peaking at 22 percent in 2023 before easing modestly. Yet if the baseline data underweights crucial cost drivers like fuel and utilities, the calibration of those rates is compromised.
There are precedents for reform. Many countries supplement their CPI with alternative indices: core inflation excluding volatile food and energy, or Personal Consumption Expenditure indices that reflect evolving consumer baskets. Pakistan’s statistical authorities have resisted major changes, citing the need for continuity. But continuity is not a virtue if the frame itself is outdated. A more nuanced suite of inflation metrics—urban versus rural, subsidised versus unsubsidised consumption, formal versus informal market prices—would bring policy closer to lived reality.
Until then, inflation will remain less a measured fact than a contested story. Official figures may show a steady decline, but households still ration meals, delay medical care, and cut schooling expenses to cope with prices that never truly recede. The politics of inflation in Pakistan has always been about narrative: whether the government can convince its creditors that it is in control, and whether citizens can be persuaded that relief is on the horizon. The danger is that in reconciling these two imperatives, the numbers become a mirror that flatters rather than reflects.
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