Pakistan's Inflation Returns to Double Digits Amid Fuel Price Hike

Consumer price inflation in Pakistan has ticked up to 11.1 percent in August, marking a return to double digits after a one-month hiatus. The increase is largely attributed to rising fuel prices and their indirect impact on other sectors.

The hike, coupled with a continuous surge in wheat prices, reinforces the State Bank of Pakistan's (SBP) cautious stance on monetary policy. Inflation is expected to remain above its medium-term target of 5-7 percent during FY27.

Core inflation remains sticky, hovering between 8-9 percent for the fifth consecutive month, with urban consumers facing an 8.8 percent increase and rural consumers experiencing a 8.5 percent rise in prices.

Food inflation saw a 1.7 percent monthly increase, with non-perishable food prices rising 1.2 percent and perishables jumping 4.4 percent. Onion prices skyrocketed by 48.4 percent, potatoes rose 10.6 percent, and eggs increased 10.4 percent.

The SBP has little room to loosen monetary policy without risking renewed pressure on the external account. With the real policy rate barely positive at 0.4 percent and expected to reach 2-3 percent by FY27, rate cuts appear increasingly difficult to justify.