Inflation accelerates to 4.1% in July

ISLAMABAD: Pakistan’s annual inflation rate climbed to 4.07 percent in July 2025, up from 3.2 percent a month earlier and the highest level since December 2024, official data showed Friday.

While in corresponding month of last year (July), it was 11.09 percent.

The acceleration was largely fueled by a rebound in housing and utilities prices, which rose 3.56pc after falling 3.28pc in June, and higher transport costs, which increased 2.7pc compared with 0.6pc a month earlier.

However, the impact was partly offset by slower price growth in food and non-alcoholic beverages, which eased to 0.9pc from 2.6pc, and declined in recreation and culture, where prices dropped 1.5pc.

Clothing and footwear, alcoholic beverages and tobacco, furnishing and household equipment maintenance, health, restaurants and hotels, and miscellaneous goods and services also posted slower price increases in July.

The higher inflation reading comes after the State Bank of Pakistan warned of a worsening inflation outlook and kept its key interest rate unchanged at 11pc.

The bank’s monetary policy committee said Wednesday that energy prices, particularly for gas, had risen more than expected and that the real policy rate needs to remain positive to keep inflation within the 5pc to 7pc target range.

Pakistan is implementing economic reforms under a $7 billion International Monetary Fund program, including a contractionary budget passed in June that cuts spending to reduce the fiscal deficit.

But independent economists believe that the higher interest rate would make it difficult for the government to manage the budget deficit, increasing the pressure of debt servicing (interest payments). Currently, around three-fourth of the country’s revenues are being eaten up by debt servicing, with a major chunk on domestic debt taken from commercial banks.

The real interest rate, which is the current interest rate minus the inflation rate, stands at 6.93pc.

Maintaining a high positive real interest rate poses serious risks to debt sustainability, as it increases the cost of borrowing, leading to higher debt servicing costs for the government.

Notably, in last fiscal 2024-25, the CPI stood at 4.49pc, a decrease from 23.41pc in FY24.

Core inflation, which excludes volatile food and energy prices, also inched up to 7.0pc in July from 6.9pc in June, and was significantly lower than the 11.7pc recorded in July 2024. Urban inflation stood at 4.4pc, while rural areas saw 3.5pc inflation, from 13.2pc and 8.1pc, respectively, in the same month last year. The Wholesale Price Index (WPI) declined 0.5pc in July, continuing a downward trend from June’s 0.6pc drop. WPI was up 10.4pc in July 2024. Some kitchen staples saw notable monthly increases: fresh vegetables prices surged 45.76pc, chicken (29.73pc), tomatoes (19.9pc), potatoes (10.97pc), onions (9.36pc), sugar (6.11pc), gur (3.48pc), rice (1.46pc).But there was respite in some items prices—eggs prices dropped by 14.5pc, fresh fruits 7.17pc, and wheat flour 1.03pc.