Pakistan’s inflation has accelerated to its highest point in over a year, raising fresh concerns about the cost of living and the State Bank’s monetary policy stance heading into the second half of the fiscal year.
Headline Inflation Hits 7%
Pakistan’s headline inflation clocked in at 7% on a year-on-year (YoY) basis in February 2026 — the highest since October 2024 — according to data released by the Pakistan Bureau of Statistics (PBS). The reading falls in line with the Ministry of Finance’s estimate of 6–7%.
This compares to 5.8% in January 2026 and a much lower 1.5% recorded in February 2025, highlighting the sharp upward trajectory over the past year.
On a month-on-month basis, CPI rose by 0.3% in February 2026, compared to a 0.4% increase in the previous month and a 0.8% decline in February 2025. This brings the 8-month FY26 average inflation to 5.46%, compared to 5.85% during the same period of FY25.
Urban and Rural Breakdown
Urban CPI inflation rose 6.8% YoY in February 2026, up from 5.8% the previous month and 1.8% in February 2025.
Rural CPI inflation came in slightly higher at 7.3% YoY in February 2026, compared to 5.8% in the previous month and just 1.1% in February 2025.
Core and Wholesale Inflation
Core inflation, as measured by the Non-Food Non-Energy (NFNE) index for rural areas, held steady at 8.3% YoY in February 2026, unchanged from the previous month but significantly lower than the 10.4% recorded in February 2025.
Core inflation via the 20% weighted trimmed mean for urban areas rose to 5.1% YoY in February 2026, up from 4.9% the month prior, while the rural trimmed mean edged up to 5.6% from 5.4%.
The Sensitive Price Indicator (SPI) — which tracks weekly price movements of essential goods — climbed to 4.8% YoY in February 2026, compared to 3.3% the previous month. Wholesale Price Index (WPI) inflation rose 1.0% YoY, up from a 0.2% gain in January.
SBP Policy Rate Held; Pressure Mounts
In its most recent Monetary Policy Committee (MPC) meeting, the State Bank of Pakistan (SBP) kept its benchmark policy rate unchanged at 10.5% — a decision that surprised markets, which had widely anticipated a rate cut. SBP Governor Jameel Ahmad warned at the time that inflation could rise above 7% in the second half of the current fiscal year.
The February reading confirms that forecast is already materializing.
What’s Ahead?
Analysts at Optimus Capital Management expect headline CPI to continue trending higher through the rest of FY26, with base effects potentially pushing inflation near 9–10% YoY by June 2026. The firm notes that the strongest month-on-month print is likely to come in March 2026, driven by Ramadan demand seasonality, elevated crude oil prices amid Middle East tensions, and positive Fuel Cost Adjustment (FCA) electricity charges.
Continued stability in the Pakistani rupee and relatively softer global oil prices remain key offsetting factors. Optimus estimates FY26 average inflation at 6.7% YoY, which would keep it within the SBP’s 5–7% target range.
However, with the ongoing US-Israel conflict pushing global oil and commodity prices higher, downside risks to that forecast are growing.