Headline CPI inflation rose 5.6 percent year-on-year in September – the highest since October 2024. The spike was widely anticipated, with the wheat price fiasco leading the charge.
Rural inflation bore the brunt, with month-on-month (MoM) inflation at 2.76 percent – a 26-month high – compared to a much milder 1.5 percent in urban areas. The divergence has been a recurring theme in Pakistan’s inflation story: rural households, with a significantly higher share of food in their consumption basket, are consistently more vulnerable to supply shocks. In fact, food and beverages contributed 94 percent of rural MoM inflation in September, and an even higher 98 percent in urban settings – leaving almost no role for non-food components in driving the monthly surge.
Wheat, flour, and related products were at the heart of the problem, accounting for more than two-thirds of the MoM impact. This was the largest single contribution from the wheat group in over 30 months in rural areas – underlining how central the crop remains to Pakistan’s price stability. Eight of the top ten rural inflation drivers were food-related, with seasonal spikes in perishables such as fresh vegetables, onions, and tomatoes also in play. Tomatoes alone surged by a staggering 89 percent – a jump highly unusual for September – while onions and leafy vegetables also recorded double-digit increases.
For now, the feared impact of recent floods on food crops has not been fully reflected in prices, except for tomatoes. Encouragingly, preliminary damage assessments suggest agricultural losses may be less severe than initially feared, which could pave the way for perishable prices to normalize in the coming weeks.
Electricity tariffs, on the other hand, provided a rare source of relief. A sizeable negative fuel charges adjustment – both monthly and quarterly – pulled the average national domestic tariff down to Rs20.9 per unit. That is the lowest level in two years, and a massive 33 percent below the peak of March 2024. For a country where electricity price hikes have been the most persistent non-food inflation driver in recent years, the decline is notable. Some upward adjustment is likely in the months ahead, but the risk of major shocks has reduced considerably.
More realistic tariff assumptions in the FY26 base tariff, stable international energy markets, and relative calm in the currency market suggest that power tariffs may no longer be the inflationary wild card they once were.
Transport fuel inflation, too, appears set to remain subdued. Global oil prices have retreated after OPEC+ unexpectedly rolled back production cuts, while easing tensions in the Middle East have added to the downward pressure. Pakistan, being a price taker in global energy markets, stands to benefit from this stability, provided the rupee-dollar parity remains in check.
Core inflation, however, remains stubborn. It held at 7 percent year-on-year in urban areas and 7.8 percent in rural, showing little sign of easing. For FY26, it is premature to make definitive calls, but if inflation lands anywhere within the State Bank’s 5–7 percent target range, it would mark the first time since the CPI rebasing that annual inflation stays in single digits – despite multiple MoM readings above 2.5 percent.