EDITORIAL: Pakistan Bureau of Statistics (PBS) released data for headline inflation (Consumer Price Index) was 5.6 percent in January 2026 compared to 6.1 percent in December 2025 – a sizeable decline backed by the July-December average Sensitive Price Index (SPI) decline to 2.96 percent against 9.36 percent during the same period the year before.
Wholesale Price Index (WPI) as per the PBS for the first six months of the current fiscal year was a mere 0.30 percent as opposed to 4.38 percent in the same period of the year before – a calculation that the October 2024 Extended Fund Facility loan approval documents noted that “important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the Government Finance Statistics (GFS). The authorities are prioritizing addressing these weaknesses, supported by Fund Technical Assistance on the GFS and a new Producer Price Index.” The Fund TA’s scheduled completion is by end June 2026 and some revisions are anticipated though the document further acknowledged that “data on prices is relatively comprehensive and published at a high frequency, though the CPI weights (from FY15/16) are somewhat dated.”
CPI, SPI and WPI are important from a political perspective as CPI and SPI impact on the general public while the WPI is indicative of the cost of production of productive units. However, in spite of a massive decline in WPI for the first six months of the current year against the same period the year before Pakistan’s industrial sector has been clamouring for comparable input costs (utilities and discount rate) that would provide a level playing field in comparison to regional competitors – a clamour that is likely to gather further momentum subsequent to India’s free trade deal with the European Union and the agreement reducing tariffs to 18 percent with the United States, one percent lower than the tariffs agreed between the US and Pakistan.
It is, however, core inflation (non-food and non-energy) that is used as a yardstick for any adjustment in the policy rate. The Monetary Policy Committee (MPC) headed by the Governor State of Pakistan (SBP) reduced the policy rate from 11 percent (applicable on 16 June 2025) to 10.5 percent on 15 December 2025, prompting critics to maintain that the 50 basis point reduction was no doubt considered the (i) maximum possible, given the IMF’s insistence to sustain a tight monetary policy on the one hand and the (ii) Finance Minister Muhammad Aurangzeb’s projection in August 2025 that even though the rate is within the purview of the SBP yet in his opinion there is room for a rate reduction by the end of the year – a decline which would have enabled the government to meet the budgeted domestic debt servicing costs.
Given this background, it comes as no surprise that the core inflation did not decline in December month on month – rising from 0.3 percent to 0.5 percent for urban and from 0.5 percent to 0.6 percent for rural. The most recent Monetary Policy Statement dated 26 January 2026 noted that “the Committee observed that headline inflation of 5.6 percent y/y in December 2025 was in line with its expectation. However, core inflation has steadied around a relatively higher level of 7.4 percent in recent months.”
It would be advisable to wait for the Fund TA report completion as its assessment is that there is no data that is adequate for surveillance though prices data has “some shortcomings but is broadly adequate for surveillance,” perhaps an observation rooted in the fact that as long as core inflation remains high there would be no justification for reducing the discount rate.
Copyright Business Recorder, 2026
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