Pakistan’s inflation projected to stay below 4.5 per cent despite risks

ISLAMABAD: Pakistan’s inflation is expected to stay between 3.5 and 4.5 per cent, though recent heavy rains could hurt crops and disturb supply chains, the Finance Division said in its Monthly Economic Update for July 2025.

Average inflation in FY2025 dropped to 4.5 per cent, down from 23.4 per cent the year before. In June, annual inflation fell to 3.2 per cent, compared to 12.6 per cent in June 2024.

On a monthly basis, inflation rose slightly by 0.2 per cent in June, after dropping by the same amount in May.

The sharp drop in inflation was mostly due to a 10.6 per cent fall in perishable food prices and a 3.3 per cent dip in housing, utilities, and fuel costs. But some sectors still saw price hikes. Health costs rose 12.2 per cent, education 10.1 per cent and clothing 8.9 per cent.

The economy showed signs of a rebound. Real GDP grew by 2.68 per cent in FY2025. Agriculture improved, helped by a 16.6 per cent rise in farm credit and a 20 per cent jump in machinery imports. Fertiliser use also increased, with urea and DAP usage up 20.1 per cent to 308,000 tonnes.

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Large-scale manufacturing picked up as well, showing 7.9 per cent growth over the month and 2.3 per cent over the year in May. Sectors driving the recovery included textiles, beverages, petroleum, and automobiles.

Cement dispatches reached 46.2 million tonnes, up 2.1 per cent from last year.

Pakistan’s external position improved too. The current account showed a surplus of $2.11 billion, the first in 14 years. This came on the back of record remittances of $38.3 billion and a 4.2 per cent rise in exports to $32.3 billion.

Foreign direct investment rose by 4.7 per cent, led by strong flows into the power and finance sectors.

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