An upcoming food shock?

The May inflation print should have been comforting, at least at first glance. Headline CPI rose by 11.7 percent year-on-year, which is uncomfortable but still not in the territory Pakistan became accustomed to during the last inflationary cycle; food inflation is up 7.9 percent year-on-year, while the month-on-month increase in the food group was a barely visible 0.10 percent. That, however, is where the comfort should end.

The food basket is already showing an uneven but meaningful shift beneath the headline. Non-perishable food prices were up 9.4 percent year-on-year nationally, and by 10.9 percent in rural areas; wheat and wheat flour were among the sharpest movers, with urban wheat up 62.2 percent year-on-year and wheat flour up 54.4 percent, while rural wheat and wheat flour were up 63.5 percent and 62.7 percent, respectively.

Perishables, meanwhile, remain volatile enough to flatter or distort the headline depending on the month, as tomatoes, vegetables, potatoes, onions, and chicken continue to swing sharply in either direction. The food story, therefore, is not one of uniform acceleration; it is one of selective but politically sensitive price pressure in staples, partially masked by the usual noise in perishables.

That distinction matters because Pakistan may be entering a period where food inflation is not only a domestic supply-chain problem, but also an external commodity, climate, and fiscal problem.

The IMF’s latest review does not forecast a full-blown food shock; in fact, it frames the Middle East war shock as mostly energy-led, with more modest effects expected on food and core inflation. Yet that is precisely where the analytical risk lies.

Energy inflation does not remain energy inflation in an economy where diesel is embedded in irrigation, harvesting, freight, mandi movement, inter-city transport, and cold-chain economics. It begins at the pump, but it does not end there.

The fiscal outlay is already revealing the constraint. Following the fuel price shock, the government temporarily delayed further fuel price adjustments through a subsidy to oil marketing companies costing 0.1 percent of GDP, later unwound, while retaining a temporary reduction in petroleum levy on diesel.

Federal and provincial governments also announced targeted relief for vulnerable groups, including limited support for motorbike owners and small farmers, alongside subsidized public transport in the largest province.

All of this is expected to be budget neutral, which is reassuring only if one ignores what budget neutral means under an IMF programme: any cushioning of one shock must be paid for by compression elsewhere.

Pakistan does not have a food shock response sitting in a fiscal drawer. It has a constrained budget, a primary balance target, and a long history of converting commodity volatility into either arrears, subsidies, import mispricing, or administrative controls.

This is where the risk becomes less about today’s food inflation and more about the next two quarters. The war has already raised the cost and uncertainty around fuel; however, the more important food-system risk may lie in fertilizer.

Pakistan’s urea exposure may be manageable due to domestic production, but DAP is a different story.

A prolonged disruption in DAP supply chains, or even a sharp price increase at the wrong moment, could affect Kharif planting decisions. That does not mean immediate food inflation in June. It means farmers may alter input intensity, delay application, switch crops, accept lower expected yields, or rely more heavily on informal credit.

Such decisions do not show up in CPI immediately; they show up later in market arrivals, yield outcomes, farmgate prices, and substitution pressure across grains.

The global backdrop is not benign either. The latest official ENSO outlook points toward El Niño, with elevated probability of persistence through the northern hemisphere winter.

El Niño is not a commodity forecast by itself, and every event differs by timing, strength, and regional interaction; however, it raises the probability of weather anomalies across agricultural powerhouses and import-dependent regions. For Pakistan, the relevant point is not whether Brazil, Canada, the United States, Australia, India, or Southeast Asia each suffers a synchronized production shock.

The relevant point is that global commodity balance sheets are now tight enough in several places that weather risk does not need to be catastrophic to become price-relevant.

Corn is a useful example. USDA’s May outlook projects world corn production for 2026-27 below last year’s record, while consumption is expected to exceed production by 20MMT and global ending stocks, if realized, would fall to the lowest level since 2013-14. That matters for Pakistan not because Pakistan is a large corn importer, but because corn prices sit inside a broader feed, poultry, dairy, starch, and grain substitution complex.

Higher corn prices may be good for Pakistani exporters if exportable surplus exists; yet the same price signal can pull local grain prices upward, particularly when domestic market integration is weak and export parity begins to matter more than local affordability.

Rice presents a similar two-sided problem. Global rice output is projected to decline for the first time since 2015-16, while trade is expected to rise to a record level. That can create export opportunity for Pakistan, especially if competitors face weather or policy constraints.

However, export opportunity is not costless. In a poorly buffered domestic market, higher external prices do not merely improve export receipts; they can also transmit back into domestic wholesale and retail prices, especially when traders expect policy discretion.

The same rice price that improves the trade account can worsen the kitchen account.

The wheat channel is even more politically sensitive. Pakistan’s wheat market is still recovering from policy confusion, procurement withdrawal, stock mismanagement, and damaged farmer confidence.

Wheat flour prices in the CPI basket are already rising sharply on a year-on-year basis. A global grain rally, even if driven by corn or rice fundamentals, can create a substitution-effect pull on domestic wheat prices, not because wheat is perfectly integrated with those markets, but because traders, feed users, households, and policymakers do not operate in commodity silos.

Once grains begin repricing, relative prices adjust; and once relative prices adjust, administrative attempts to isolate wheat from the rest of the grain complex usually end in leakage, hoarding, smuggling incentives, or renewed subsidy pressure.

Edible oil is another pressure point. Pakistan’s edible oil import dependence has always made the food basket vulnerable to global oilseed and vegetable oil markets.

USDA’s current outlook shows stronger soybean oil pricing and continuing demand from biofuel use, while palm oil remains the largest traded vegetable oil but faces its own regional supply dynamics. This is not a peripheral concern. Cooking oil and ghee are mass-consumption items, and when global vegetable oil prices rise, Pakistan imports that inflation directly.

Unlike wheat, where the state still pretends it can manage the market through procurement legacy and flour-mill politics, edible oil is a cleaner external pass-through story: dollar prices, freight, exchange rate, taxes, margins, and retail impact.

Sugar, too, remains one weather event away from policy theatre. Global sugar markets are exposed to cane and beet conditions across major producers, while domestic sugar policy in Pakistan remains an impressive monument to inconsistency.

The country has only recently moved from export permissions to import anxieties, while domestic price controls and miller politics continue to operate in parallel. If global sugar prices firm up again, Pakistan’s policymakers will once again face the familiar choice between allowing domestic prices to adjust, subsidizing consumers, restricting trade, or pretending that raids on retailers constitute a supply-side policy.

The food shock risk, therefore, is not simply that prices may rise. Prices always rise somewhere in Pakistan’s food basket. The risk is that multiple transmission channels may converge at once: fuel into transport and mechanization; DAP into Kharif yields; El Niño into global crop uncertainty; higher grain prices into local substitution effects; edible oil into direct import inflation; corn and soybean prices into poultry and dairy; and fiscal constraints into delayed or distorted policy response.

Each channel is manageable in isolation. Together, they can convert a moderate inflationary impulse into a broader food-price episode.

The policy problem is that Pakistan’s instinctive response to food inflation remains administratively muscular and economically weak. When prices rise, the state tends to search for culprits rather than price signals; it prefers raids to data, bans to buffers, subsidies to targeting, and committees to market intelligence.

Yet the next food shock, if it comes, will not be solved at the retail counter. It will require pre-emptive fertilizer monitoring, credible Kharif acreage and input-use data, predictable trade policy, realistic wheat stock disclosure, and targeted income support that does not blow a hole through the fiscal programme.

There is also a necessary political economy distinction. Higher grain prices are not automatically bad for Pakistan if they improve farm incomes and export earnings. But in the absence of functioning storage, hedging, warehouse receipt financing, crop insurance, and transparent commodity markets, price gains rarely translate cleanly into farmer welfare. They are captured unevenly across traders, processors, large farmers, intermediaries, and exporters; meanwhile, consumers face the retail adjustment almost immediately. That is why food inflation in Pakistan is not only a price problem, but also a distribution problem.

The question, then, is not whether Pakistan is already in a food shock. It is not. The question is whether the system is prepared for one.

On present evidence, the answer is not reassuring. The latest inflation data show staple pressure; the IMF report shows limited fiscal space; global commodity outlooks show tightening in key grain and oilseed balances; and the climate outlook suggests elevated weather volatility across major agricultural regions.

An upcoming food shock is still a risk, not a forecast. But it is now a risk with enough moving parts to deserve serious policy attention. Waiting for the CPI headline to confirm it would be very Pakistani; it would also be too late.