KARACHI: The evolving geopolitical situation and recent surge in international and domestic oil prices have uncertain the inflation outlook, with the State Bank of Pakistan (SBP) expecting inflation to remain above 7 percent during the remaining months of FY26 and into FY27, citing risks from volatile food prices, potential adjustments in domestic energy tariffs, and uncertainties arising from ongoing geopolitical tensions.
According to SBP’s monetary policy statement issued on Monday after the Monetary Policy Committee (MPC) meeting, as expected, headline inflation rose to 7.0 percent y/y in February, largely due to phasing out of low base effect from food and energy prices, along with rationalisation of fixed charges on households’ electricity bills. Meanwhile, core inflation increased to around 7.6 percent.
The MPC assessed that the impact of higher expected domestic energy prices is likely to be partially offset by recent favorable movement in food prices amidst improved supply of key items and better prospects of agriculture produce. The MPC also observed that the ongoing anchored inflation expectations and stable inflation environment are likely to somewhat limit the second-round impact of the increase in domestic fuel prices.
READ MORE: SBP seen holding rates steady as the oil rally clouds inflation outlook
At the same time, the MPC noted that this assessment is subject to significant risks, particularly those from the evolving geopolitical situation, as well as from volatile food prices and unanticipated adjustments in domestic administered energy prices.
On balance, given these developments and risks, the committee assessed that inflation may remain above 7 percent in the remaining months of FY26 and into FY27.
In the previous monetary policy meeting held in January 2026, MPC was expecting that inflation both consumers and businesses continue to ease. In addition, the committee projects inflation to stabilise within the target range of 5-7 percent in FY26 and FY27, after temporarily exceeding the upper bound for a few months during this calendar year. However, in the monetary meeting held on Monday, the SBP has not given any new range for the inflation outlook.
The SBP, in January meeting policy statement, already clarified that inflation outlook was subject to risks emanating from volatility in global commodity and domestic wheat prices, unanticipated adjustments in administrative energy prices, and a sharper than assumed pickup in domestic demand.
Copyright Business Recorder, 2026
Comments