Inflation has become one of the most important challenges in Pakistan’s economy, hurting every household from Karachi to Khyber. In 2025, despite small gains compared to recent years, the cost of living crisis continues to weigh hard on the country’s 240 million residents. Rising prices, a falling rupee, and global economic pressures have all combined to make inflation the single largest concern facing both policymakers and ordinary people.
The Current Inflation Situation in Pakistan (2025)
As of mid-2025, Pakistan’s inflation rate is between 18% to 20%, according to the Pakistan Bureau of Statistics (PBS). This is a minor improvement from the record highs of over 30% in 2023, however it remains significantly above the regional norm.
Prices of key commodities — such as wheat, sugar, electricity, gas, and fuel — have continued to grow, straining middle- and lower-income people. While the State Bank of Pakistan (SBP) has implemented many monetary tightening measures to combat inflation, the impact on consumer prices has been minimal.
The core inflation rate (excluding food and energy) also remains high at roughly 15%, suggesting deeper structural difficulties in the economy.
Key Causes of Inflation in Pakistan
Inflation in Pakistan is driven by a combination of domestic shortcomings and external pressures. Here are the primary variables pushing price spikes in 2025:
Currency Depreciation
The Pakistani Rupee, however more stable than in recent years, remains under pressure at roughly PKR 290 per USD. Depreciation makes imports — including gasoline, machinery, and food — more expensive, leading to a cost-push effect across the economy.
High Energy Prices
Electricity and gasoline prices have surged due to rising global oil costs and the government’s decision to remove subsidies as part of the IMF program. The energy sector’s circular debt has also driven tariff hikes, boosting output costs for industries and daily expenses for consumers.
Imported Inflation
Global food and commodity prices, especially after crises in the Middle East and interruptions in global supply networks, have placed external pressure on Pakistan’s domestic markets.
Fiscal Deficit and Printing of Money
Pakistan’s enormous budget deficit – about 6% of GDP — has led to borrowing from local sources. When the government produces money to pay deficits, it increases money supply, depreciating the rupee and pushing up prices.
Weak Agricultural Supply Chain
Despite being an agrarian economy, Pakistan suffers from post-harvest losses, hoarding, and intermediaries exploitation. This produces seasonal shortages of food products like wheat, onions, and tomatoes, leading in unexpected price surges.
IMF-Driven Reforms and Tax Adjustments
While IMF changes are vital for long-term stability, short-term repercussions include higher gasoline taxes, power surcharges, and import duties, all of which directly raise consumer prices.
Impact of Inflation on Daily Life
Inflation has altered everyday living in Pakistan. For millions, the struggle to make ends meet has gotten much harder.
Household Budgets Under Pressure
Families have cut back on non-essential spending, turning their focus to food and utilities. Many middle-class households say that up to 60% of their income now goes to basic necessities.
Rising Poverty and Inequality
The World Bank estimates that nearly 40% of Pakistanis are now living below the poverty level. Inflation disproportionately affects lower-income people that spend most of their income on food and transportation.
Declining Purchasing Power
Wages have not kept pace with price hikes. Even professionals and government employees are battling to maintain their quality of living as actual salaries plummet.
Impact on Small Businesses
Inflation boosts the cost of raw materials and reduces consumer spending, affecting small and medium companies (SMEs). Many local retailers and manufacturers have either shut down or reduced back production.
Economic hardship has led to increased dissatisfaction and emotional tension among citizens. Reports suggest increased financial worry, especially among urban youngsters and low-income households.
Government and State Bank Measures
To combat inflation, both the Government of Pakistan and the State Bank of Pakistan (SBP) have undertaken many monetary and fiscal measures in 2025.
Tight Monetary Policy
The SBP has kept the policy interest rate about 22%, one of the highest in the area. This seeks to limit borrowing, control demand, and curb inflationary pressure.
Targeted Subsidies
The government has introduced targeted assistance programs through the Benazir Income Support Programme (BISP) and Ehsaas Rashan Riayat to give subsidized food goods for low-income families.
Price Monitoring and Market Reforms
Authorities have intensified market surveillance to control stockpiling and false price manipulation. Special teams have been dispatched in provinces to monitor crucial goods including wheat, sugar, and fuel.
Import Management
To address supply limitations, Pakistan has decreased import levies on critical products like cooking oil, lentils, and wheat while keeping limits on luxury imports.
Boosting Agricultural Output
Government “Kissan Packages” are encouraging fertilizer subsidies, low-interest loans, and mechanization to enhance crop yields and reduce dependence on food imports.
The Role of IMF and Global Factors
The IMF Extended Fund Facility (EFF) signed in 2025 is aimed to restore economic stability by ensuring budgetary discipline. However, IMF criteria such as cutting subsidies and raising taxes have temporarily increased inflation.
Globally, increased oil prices, climatic disruptions, and geopolitical concerns continue to affect Pakistan’s import expenses. The mix of domestic reforms and international shocks makes inflation control a complex balancing act for policymakers.
Outlook: Will Inflation Ease in 2026?
Economists are moderately hopeful that inflation will drop to roughly 12–14% by mid-2026 if current monetary policies and reforms continue. The key rests in maintaining:
- Stable exchange rates, * Improved energy management, * Consistent government policies, and * Increased domestic production. A good agricultural performance and improving global oil prices could further assist price stability. However, if political instability, supply chain interruptions, or currency depreciation re-emerge, inflation may remain persistently high.
The Way Forward
To bring permanent pricing stability, Pakistan needs a long-term structural approach rather than short remedies.
Recommended Policy Steps:
- Enhance Food Security: Invest in storage facilities, irrigation systems, and market changes to prevent artificial shortages.
- Diversify Energy Sources: Reduce dependency on imported oil by growing solar, wind, and hydropower.
- Strengthen Currency Management: Encourage remittances, boost exports, and limit speculative trading in the FX market.
- Expand the Tax Base: Increase revenue through documentation and digital tracking of enterprises instead of indirect taxes that boost prices.
- Promote Industrial Productivity: Support manufacturing through lower tariffs, easier loans, and export-oriented incentives.
- Political Stability: Consistent economic policy and governance are vital to attract investment and sustain market confidence.
Conclusion
The inflation problem in Pakistan (2025) continues to challenge both policymakers and ordinary individuals. Although the rate of price increase has eased significantly, the burden on households remains severe. Energy prices, currency depreciation, and structural vulnerabilities keep inflation elevated.
However, with continued IMF-backed reforms, tighter monetary policy, and targeted subsidies, Pakistan is beginning to establish the framework for long-term stabilization. The path ahead is challenging, but with continuous leadership, budgetary restraint, and productive investment, inflation can be kept under control – paving the way for sustainable economic recovery.
