Pakistan's inflation surge could spiral into prolonged financial strain: Report
New Delhi, July 4
Pakistan's economy is under mounting pressure as inflation touched 11.7 per cent in May and economists warned the country risks slipping into a cycle of weak growth, rising prices and financial strain, a new report has said.
The report from Morocco-based media house Assahifa said that annual inflation in Pakistan rose to 11.7 per cent in May 2026, up from 10.9 per cent in April and 7.3 per cent in March. State Bank of Pakistan's target range of inflation stands at 5 per cent to 7 per cent.
Economists attributed the rising inflation to a sharp rise in transport costs and perishable food prices, each up about 15 per cent, alongside a severe foreign‑exchange squeeze and a soaring oil import bill.
All these factors have eroded purchasing power and weighed heavily on economic activity, the report noted.
The US-Iran war had disrupted supply chains worldwide but Pakistan is more to external shocks because of its heavy dependence on imported energy and its fragile balance-of-payments position.
Pakistan's central bank recently raised its policy rate by 100 basis points, to 11.50 per cent from 10.50 per cent, in an effort to rein in inflation but economists called the move "wrong medicine for the wrong diagnosis."
The higher interest rates risk will slow down investment and could push the economy toward stagflation.
Experts argued that higher interest rates can help cool an economy when inflation is driven by excessive demand but Pakistan's inflation stems from supply-side distortions.
On the supply side, analysts argued that preference for lending to the state over the private sector has emerged, as low confidence and uncertainty encourage commercial banks to invest in government securities rather than extend credit to businesses.
The report cited Prime Minister Shehbaz Sharif saying the country's oil import bill had surged from $300 million to $800 million since the US-Iran conflict effectively "erasing all the economic progress the country had made over the past two years."
— IANS
Reader Comments
The central bank raising interest rates from 10.50% to 11.50% seems like a knee-jerk reaction. Economists are right—this is supply-side inflation, not demand-driven. Higher rates will just kill investment and maybe even cause stagflation. Pakistan needs structural reforms, not just monetary tweaks. But then again, easy for me to say sitting here in India.
The PM's comment about oil bill going from $300M to $800M is shocking—that's nearly triple! No wonder they're feeling the pinch. Their forex reserves are already in trouble. Honestly, this is a lesson for all of us in South Asia about the dangers of depending too much on imported energy. India needs to accelerate its renewable energy push to avoid similar shocks.
Banks preferring to lend to the government rather than businesses is a classic sign of lost confidence. Private sector credit is the engine of growth, and when that dries up, you get stagnation. Pakistan's economy is caught between rising prices and slow growth—a vicious cycle. I feel for the common people there who are bearing the brunt of this.
15% rise in transport and food costs is huge. Reminds me of how sensitive our own economy is to similar factors. The report calling the rate hike 'wrong medicine' makes sense—you can't cure a supply chain problem with a demand-side tool. Pakistan really needs to diversify its energy mix and build better forex buffers. Tough times ahead for them.
A balanced perspective is needed here.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.