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Pakistan inflation rate: Slowing price rises offer ray of hope for flood-ravaged economy

By Fitri Wulandari

Edited by Jekaterina Drozdovica

16:23, 10 October 2022

People salvage usable items from a damaged hotel building and homes caused by floodwaters, in Kalam in Swat Valley, Pakistan
Slowing price rises offer ray of hope for flood-ravaged economy Photo: A M Syed / Shutterstock

Pakistan’s inflation rate eased to 23.2% in September, from 27.3% in August, the first decline in seven months since the South Asian country was ravaged by one of the worst floods in its history.

While the inflation reading remained in double digits, there was hope that it may continue to cool off along with the receding floodwaters. What will be the forecast for Pakistan’s inflation rate in 2022 and beyond? 

We look into the country’s inflation rate history and factors that affect price growth as well as the latest analysts’ predictions.

How is inflation measured in Pakistan?

Inflation is defined as an increase in the cost of goods and services. It represents a decrease in the purchasing power of money. When prices rise, consumers typically have less money to spend, which raises the cost of living and slows economic growth.

The Pakistan Bureau of Statistics (PBS) calculates Consumer Price Index (CPI) inflation by measuring the prices of goods and services in 12 major groups:  

  • Food and non-alcoholic beverages

  • Alcoholic beverages and tobacco

  • Clothing and footwear

  • Housing, water, electricity, gas & fuels

  • Furnishing & household equipment maintenance

  • Health

  • Transport

  • Communication

  • Recreation & culture

  • Education

  • Restaurants and hotels

  • Miscellaneous

The country’s CPI basket has 487 items. Prices are collected from 76 markets in 40 cities, according to the PBS. Food and non-alcoholic beverages account for more than 30% of the CPI basket.

The Government of Pakistan has set the inflation rate target for fiscal year 2022/2023 at 11.5%, an increase from 8% in 2021/2022.

Supply factors that affect the Pakistan inflation rate include global crude and edible oil prices, as the country relies on imports of the two commodities.

Agriculture production has a significant contribution, too. Pakistan’s main food crops are wheat, rice, sugarcane and maize, with the first two being the most consumed staples by Pakistanis. Their harvest is likely to be a contributor to the overall inflation rate.

The movement of the Pakistani Rupee’s exchange rate against the US dollar also affects the inflation rate as the country imports a number of commodities to meet the needs of its 224.7 million population.

In addition to CPI, PBS produces the weekly Sensitive Price Indicator (SPI) and the Wholesale Price Index (WPI).

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Inflation in Pakistan: Historical data

In the first quarter of fiscal year 2021/2022, inflation in Pakistan stayed in single digits. In the period July-September 2021, the price growth rate averaged 8.6%, easing from the same period a year earlier and slightly above the inflation target of 8%, according to the Finance Ministry’s Pakistan Economic Survey.

The slightly-higher than targeted CPI reading prompted the State Bank of Pakistan (SBP), the country’s central bank, to hike its policy rate by 25 basis point (bp) to 7.25% in September 2021.

Pakistan’s inflation started to hit double digits, averaging 11% and 12.6% in the second and third quarters of 2021/2022, respectively, according to the survey’s Pakistan inflation rate history.

Rising prices of perishable food items such as meat, dairy and eggs, as well as rising global commodity prices fuelled by the armed conflict between Russia and Ukraine, contributed to higher inflation in the third quarter.

Soaring inflation prompted the SBP to ramp up monetary policy tightening, raising its policy rate by 150bp to 8.75%.

Inflation continued to climb, reaching 21.3% in June 2022 and peaking at 27.3% in August, before easing to 23.2% in September. August’s reading was the highest since May 1975, according to Fitch Solutions, with food accounting for 34.58% of the CPI basket inflation that month.


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Pakistan inflation rate, 2000 - 2022

The Pakistan central bank has raised its policy rate by a total of 800bp since September 2021 to 15% in August 2022 in an effort to combat inflation and cool the country's overheating economy. 

Floods drive red-hot inflation rate

A combination of torrential monsoon rains and melting glaciers had resulted in one of the worst floods in Pakistan’s history. Since the floods started in mid-June, they have killed 1,700 people and 1.16 million livestock, as of 8 October, according to the data from Pakistan’s National Disaster Management Authority (NDMA). The natural disaster has affected 33 million people across six states of the South Asian country.

The floods damaged agricultural lands, destroying wheat, cotton and rice crops, which inflated food prices in the domestic market, even in areas spared by the floods, according to the United Nations Office for the Coordination of Humanitarian Affairs (UN OCHA) note as of 16 September. The price of rice has surged by 80% since January in some parts of the country. 

The rating agency Fitch Solutions wrote in a note on 6 September:

“Food prices are likely to drive headline inflation upwards even further over the coming months. That could prompt the central bank to tighten monetary policy even more aggressively to anchor inflation expectations.”

The agency expected the share of foods on the country’s total merchandise imports to rise  from the current 10% (10 October) as agricultural production declines due to floods. 

Weakening rupee

The Pakistani Rupee has been depreciating against the US dollar since 2018, when it switched to a free-floating exchange rate from a managed rate. 

The strengthening USD, continued through the US Federal Reserve’s (Fed) aggressive monetary tightening, has accelerated PKR’s depreciation. PKR dropped to a record low to the US dollar in July. 

In the past one year, the USD/PKR has gained more than 27%  Trading Economics data showed. Stronger USD will make imports of crude oil, rice, wheat and other commodities more expensive in Rupee. 

Pakistan inflation rate forecast for 2022 and beyond

As the floodwaters receded and the current inflation rate in Pakistan eased, what do analysts’ forecast for the country’s inflation in 2022 and beyond?

In August, Pakistan central bank forecast inflation to peak in the first quarter of the current fiscal year before gradually declining. It expected the inflation rate to drop to the 5-7% target range by the end of 2023/2024 fiscal year as effects of tight monetary and fiscal policies are likely to subside and global commodity prices normalise. 

In its Pakistan inflation forecast on 6 October the World Bank expected inflation to hit 23% in 2023 due to higher domestic energy prices, flood disruptions and a weaker Rupee.

The inflation rate in Pakistan was projected to moderate to 9.5% in 2024, according to the World Bank.

Trading Economics Pakistan inflation rate forecast suggested the country’s CPI could reach 23% by the end of this quarter. The pace of Pakistan’s inflation was predicted to slow to 8.5% in 2023 and 8% in 2024, the site estimated, as of 10 October. 

Fitch Solutions revised its Pakistan inflation rate in 2022/2023 to average 25% from previously 20% amid a decrease in agricultural production to further fuel inflationary pressures.

Keep in mind that analysts’ predictions can be wrong. Forecasts shouldn’t be used to substitute your own research. Always conduct your own due diligence before trading, and never trade money you cannot afford to lose.


What is the inflation rate in Pakistan in 2022?

Inflation rate in Pakistan was 23.2% in September 2022.

Why is the inflation rate in Pakistan so high?

Inflation in Pakistan was high because of surging food prices amid devastating floods that killed 1,700 people and disrupted agricultural production. Rising global energy and commodity prices, and the weaker Rupee have also contributed to inflation.

What are the main causes of inflation in Pakistan?

The main causes of inflation in Pakistan is rising food prices, which account for more than 30% of the country’s CPI basket. Surging food prices were the result of devastating floods that killed 1,700 people and disrupted agricultural production. Rising global energy and commodity prices, and weaker Rupee also fuelled the high inflation reading.

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