EDITORIAL: Consumer Price Index (CPI) rose to 7 percent in February – a 1.2 percent rise from January’s 5.8 percent – still within the range projected for more than year by the Monetary Policy Committee (MPC), which has kept the 10.5 percent discount rate unchanged since 16 December 2025, a 0.5 percent decline from 11 percent that was prevailing since 5 May 2025.
The CPI registered 3.5 percent in May 2025, which fuels speculation that the discount rate may be upped by 100 to 200 basis points in the next MPC meeting scheduled for 9 March 2026 on the International Monetary Fund’s (IMF) insistence.
This projection is backed up by the rationale provided in the Monetary Policy Statement issued in December last year: “Headline inflation (y/y) eased to 5.6 percent in December from 6.1 percent in November amidst a moderation in food prices, notwithstanding the sharp uptick in wheat and allied product prices. Meanwhile, energy inflation increased, mainly due to fading of favourable base effect in electricity tariffs.
At the same time, the Committee noted that after declining steadily during FY25, core inflation has persisted at around 7.4 percent in the first half of FY26.
However, inflation expectations of both consumers and businesses continue to ease.” Economists continue to raise the issue of lack of data integrity in government finance statistics (GFS), a view supported by the IMF, which noted in its report that “important shortcomings remain in the source data available for sectors accounting for around a third of GDP.”
Pakistan economy’s productive sectors, specifically large-scale manufacturing sector (LSM), have been clamouring for a lower discount rate, which, they accurately point out, is double the regional average, thereby making their products uncompetitive in the international market place.
However, GFS data indicates LSM registered a growth rate of 4.8 percent July-December 2025 against negative 1.8 percent in the same period the year before. This growth rate has been challenged by the LSM sector, which has repeatedly cited more than 150 factory closures, other units producing at well below capacity and the exit of several multinationals in recent months as conclusive proof of their claim.
Data uploaded on the Pakistan Bureau of Statistics website notes the major increase was in miscellaneous items (from 368.85 to 381.22 index) a claim that is baffling, given that its weightage is 4.87 while housing, water, electricity and fuels were in second place (from 257.56 to 262.35 index) with a weightage of 23.63.
Transport costs were noted as declining in February (month on month). What should be of considerable concern to the government and more particularly the general public is the fuel supply cessation at worst and shortages at best from our fuel suppliers in the Gulf states due to the halt of shipping from the Strait of Hormuz. And, while the Prime Minister has set up a committee to monitor and take timely mitigating measures to deal with any crisis the fact remains that as a buyer our options are severely limited.
Additionally, there is legitimate concern that another negative impact of the ongoing Middle East war on our economy would be through a fall in remittance inflows, which registered a rise of 11.3 percent July-February 2026 against the same period the year before – a rise that played a critical role in the current account deficit that has once again begun to rise – from positive USD 564 million July-January 2024-25 to negative USD 1,074 million in the comparable period of the current year.
A fall of remittances from the Gulf states, which account for around 50 to 51 percent of total remittance inflows, would therefore reduce foreign exchange reserves and increase our reliance on external borrowing. To conclude, the negative fallout of the Middle East war on our economy will be substantial and would rise with the passage of time.
Copyright Business Recorder, 2026