Finance Ministry sees August inflation at 10-11%

Rising commodity and energy prices expected to keep near-term inflationary pressures elevated

 

ISLAMABAD: The Ministry of Finance expects consumer price inflation to remain elevated in August 2026, with the Consumer Price Index (CPI) projected to rise between 10% and 11% year-on-year.

 

In its latest monthly economic outlook, the ministry said recent domestic price pressures, combined with movements in global commodity and energy prices, could continue to feed into consumer prices in the near term.

 

CPI inflation stood at 9.2% year-on-year in July 2026, down from 11.1% in June but significantly above the 4.1% recorded in July 2025. On a monthly basis, prices increased 1.2% in July, reversing a 0.3% decline recorded in the previous month.

 

Transport remained the largest contributor to annual inflation, with prices increasing 15.1%. Communication costs rose 13.6%, while non-perishable food prices increased 11.6%.

 

Other notable increases were recorded in clothing and footwear at 9.2%, education at 9%, health at 7.8%, and housing, water, electricity, gas and fuel at 7.1%. Prices of household furnishings and maintenance rose 6.9%, while restaurants and hotels recorded a 5.7% increase.

 

The Sensitive Price Indicator (SPI) also edged up 0.05% during the week ended August 27. Out of 51 monitored items, prices of 20 increased, 11 declined and 20 remained unchanged.

 

Economic recovery expected to continue

 

Despite renewed inflationary pressures, the Finance Ministry expects Pakistan's economic recovery to maintain momentum in the coming months, supported by improved macroeconomic fundamentals, fiscal discipline and a relatively stable financial environment.

 

The ministry said developments in the external sector are also expected to remain supportive, particularly due to stronger exports, continued remittance inflows and measures aimed at facilitating exports.

 

Improved foreign-exchange inflows are expected to ease balance-of-payments pressures and support the country's reserve position. The ministry stressed that continued policy discipline and structural reforms would remain essential for sustaining economic growth and improving resilience against external shocks.

 

Stronger fiscal position

 

Pakistan entered FY2027 with improved fiscal and macroeconomic conditions following sustained stabilisation efforts.

 

The overall fiscal deficit narrowed to 2.6% of GDP in FY2026, its lowest level in more than two decades, while the primary surplus reached 2.9% of GDP for the year. The country recorded its third consecutive annual primary surplus.

 

The improved fiscal position was supported by expenditure controls and lower interest costs.

 

Economic activity also gained strength, with large-scale manufacturing expanding 4.98% during FY2026. The positive trend continued into the first month of the new fiscal year.

 

The moderation in inflation from 11.1% in June to 9.2% in July, combined with relative exchange-rate stability and improved macroeconomic conditions, has helped support the current monetary policy stance and economic activity.

 

Remittances and exports strengthen external account

 

Pakistan's external sector also recorded a strong start to FY2027.

 

Workers' remittances reached $3.63 billion in July 2026, marking a 13% year-on-year increase and a 4.5% rise from the previous month.

 

Meanwhile, goods exports climbed to $3.01 billion in July, up 9.4% from a year earlier and 16.9% month-on-month, according to the State Bank of Pakistan.

 

The simultaneous growth in exports and remittances has strengthened foreign-exchange inflows and provided additional support to the external account amid continued uncertainty in global markets.

 

IT exports continue to expand

 

Pakistan's technology sector is also emerging as an increasingly important source of foreign-exchange earnings.

 

IT exports reached $417 million in July 2026, representing an 17.8% increase compared with the same month last year. The sector generated around $4.6 billion in export earnings during FY2026.

 

The Finance Ministry attributed the sector's expansion to increased investment by international technology companies, developments in local technology manufacturing, policy support for IT exporters, digital payment reforms and the rollout of 5G services.

 

The ministry said continued progress in these areas could further strengthen Pakistan's digital economy and diversify the country's export base.