Pakistan’s Inflation May Exceed Target Range in FY26 as Food and Energy Prices Rise: SBP

Pakistan’s central bank has cautioned that inflation could exceed its medium-term target range in the second half of fiscal year 2025-26, as the country faces a combination of flood-induced food shortages and rising energy costs. According to the State Bank of Pakistan’s latest annual report, shortages of perishable food commodities caused by recent floods are expected to put upward pressure on food prices. Additionally, food and energy inflation is likely to rise further due to the phasing out of favorable base effects, a sharp increase in gas prices in July 2025, and the expiry of electricity price relief that was in place during the last quarter of FY25. As a result, energy prices are projected to trend higher in FY26. Despite these pressures, the SBP noted that restrained domestic demand, a benign global commodity price outlook, and a stable external environment are expected to keep underlying inflationary pressures in check. The central bank projects that headline NCPI inflation may cross the upper bound of the 5.0%–7.0% medium-term target range in the second half of FY26, before returning to target levels in FY27. The SBP also highlighted several risks to this outlook, including the ongoing impact of flood-related losses to agriculture and infrastructure, an uncertain geopolitical environment, and global trade uncertainties. These factors could pose upside risks to both the fiscal and current account deficits as well as the inflation outlook, while also threatening economic growth. Geopolitical and trade volatility may further impact Pakistan’s external position through fluctuations in global commodity prices and slower global growth and trade flows.