Pakistan’s recent decline in inflation, with the Consumer Price Index (CPI) hitting a 9-year low of 1.51% in February 2025, has prompted a wave of cautious optimism. For the first time in over a decade, inflation has shown significant moderation, bringing a momentary respite to the Pakistani public, who have endured years of escalating prices. While this reduction has been welcomed by the government and the broader public, it is crucial to examine the broader picture of Pakistan’s economic landscape, particularly in relation to inflation’s persistent grip on households and businesses.
The recent figures, while undoubtedly encouraging, should not lead to a sense of complacency. The shift from double-digit inflation rates to the current 1.5% does indeed mark an important milestone, but it is essential to remember the context. Inflation in Pakistan has been an enduring challenge. Over the past year, the country experienced an astonishing rise in prices—fuelled by supply chain disruptions, rising commodity costs, and macroeconomic instability. For many, this sustained period of inflation has led to real hardship: soaring costs of food, medicine, and essential goods. It has forced families to adjust their spending habits, often sacrificing quality of life for basic necessities. Rural populations, already grappling with economic vulnerabilities, have been hit particularly hard by price hikes on staple items such as pulses, potatoes, and milk.
Before this decline, inflation seemed like an unrelenting force that reduced the purchasing power of the average citizen. In February 2024, the country’s inflation rate had climbed to a staggering 23.1%, an alarming figure that reflected not just the erosion of savings, but a fundamental destabilization of economic expectations.
This disinflationary moment, which analysts have pointed out as a gradual reduction in inflationary pressure, should not be seen as a signal that Pakistan is out of the woods. It is, at best, a partial victory—a positive sign that the economy is responding to policy interventions, such as interest rate hikes and fiscal tightening. However, the situation remains fragile. Deflation, the dreaded counterpart to inflation, is not an inevitability, but it is something to be mindful of, especially in an economy that has endured significant shocks over the last few years.
Looking closely at the urban and rural data, the disinflationary trend is somewhat uneven. Food prices remain high, with staples such as pulses, potatoes, and fresh fruits still climbing at a significant pace in rural areas, where food insecurity is already a pressing issue. In urban centers, the rise in costs of non-food items, such as transportation, healthcare, and dental services, remains an obstacle. The highest price increases have been recorded in categories that impact the day-to-day lives of citizens—particularly in healthcare and transportation—which continue to sap the purchasing power of households.
Yet, it is important to recognize that inflation, in many ways, is a symptom of deeper structural issues. High inflation does not emerge in a vacuum; it often stems from the interplay of external pressures, such as global commodity price hikes, as well as domestic weaknesses in production, supply chains, and fiscal discipline. The country’s overreliance on imports, especially for critical goods like fuel and medicine, exacerbates these challenges. If Pakistan is to avoid falling back into the cycle of runaway inflation, the government must invest in long-term solutions that address supply-side constraints, including boosting local production and reducing dependence on foreign imports.
While the decline in inflation is a step in the right direction, the ongoing economic turmoil calls for more than just temporary fixes. A fundamental restructuring of economic policy, with a focus on sustainable growth and poverty reduction, is essential to ensuring that future inflationary pressures do not spiral out of control again.
