Monthly contraction eases headline pressures
Pakistan’s headline Consumer Price Index inflation decelerated to 5.6 percent year-on-year in December 2025, according to official data released by the Pakistan Bureau of Statistics on 1 January 2026. On a month-on-month basis, the consumer basket registered a 0.4 percent decline compared to November 2025, driven primarily by falling prices of seasonal vegetables, pulses, and lower fuel adjustments.
The December outturn matched the Ministry of Finance’s monthly economic forecast, which had projected consumer inflation between 5.5 and 6.5 percent. The reading concludes the first half of fiscal year 2025–26 (1HFY26) with an average inflation rate of 5.15 percent, representing a marked deceleration from the 7.22 percent recorded across the corresponding July–December period in the previous fiscal year.
Divergence between urban and rural baskets
The bureau’s detailed breakdown revealed diverging price pressures across geographical markets. Urban consumer price inflation rose by 5.8 percent year-on-year in December, while contracting by 0.4 percent on a month-on-month basis. In contrast, rural inflation increased by 5.4 percent year-on-year, accompanied by a sharper 0.6 percent monthly decline.
The monthly contraction across both sectors reflected easing food indices as winter agricultural supplies reached urban wholesale markets. Staple commodities, including tomatoes, onions, and poultry, retreated from autumn highs, offsetting sticky costs in housing rents, utilities, and transport. However, non-food non-energy core inflation remained firmer, indicating that services and imported consumer manufactured goods continue to carry persistent price momentum.
Policy implications for monetary easing
The continued moderation of headline price growth provides substantial breathing room for the State Bank of Pakistan ahead of its upcoming Monetary Policy Committee meeting scheduled for late January. With benchmark policy rates positioned comfortably above headline inflation, real interest rates remain firmly positive.
Central bank officials and market analysts have noted that while the headline trajectory appears stable, potential volatility in global crude oil benchmarks and planned revisions in domestic electricity and gas tariffs pose recurrent upside risks to the second half of FY26. The government’s broader macroeconomic stabilization programme depends heavily on consolidating these disinflationary gains while supporting fiscal discipline and foreign reserve accumulation. For Pakistani households, the December figures offer relief from the severe cost-of-living surges experienced over recent years, though absolute price levels for utilities and processed staples remain elevated.
Sources & reporting notes
Reporting is based on official Consumer Price Index monthly data released on 1 January 2026 by the Pakistan Bureau of Statistics, corroborated by financial market analysis from Business Recorder. Figures covering urban and rural consumer indices, half-year fiscal averages, and monthly basket movements reflect PBS statistical bulletins published at the start of January.
