The Monetary Policy Committee meets on Monday at a moment when the direction of interest rates has become less certain than it appeared only a few weeks ago. For most of the past year, the policy conversation was dominated by disinflation. Headline inflation fell rapidly from the extreme highs of the previous cycle, creating expectations that a gradual easing phase would define monetary policy through 2026. The latest data, however, suggest that the easy phase of disinflation may already be over. According to the PBS monthly inflation report card, CPI rose to 7.0 percent year-on-year in Feb-26, up from 5.8 percent in January. On a monthly basis prices increased by 0.3 percent, indicating that the upward move was not driven by a one-off shock but rather by a gradual firming of price pressures. Urban inflation stood at 6.8 percent, while rural inflation reached 7.3 percent. After months of steady decline, inflation has stopped falling. The composition of inflation is even more instructive. Core inflation remains stubbornly elevated. Non-food non-energy inflation in urban areas stands at 7.1 percent, while rural core inflation is even higher at 8.3 percent. Trimmed mean core inflation has also edged higher, settling around the mid-single digits. Throughout the disinflationary cycle, national average core inflation not once fellwithin SBP’s medium term target range of 5-7 percent. In other words, while food prices have moderated, underlying inflationary pressures have not fully dissipated, and haved failed to become anchored within what SBP defines as its optimal band. This pattern should not come as a surprise. Much of the decline in inflation during the past year was driven by base effects and normalization in food prices after the severe price shocks of earlier years. Once those base effects began fading, inflation was always expected to stabilize rather than continue falling sharply. The February data simply confirm that transition. Wholesale price indicators reinforce the same message. The Wholesale Price Index rose 1.0 percent year-on-year in February, compared to 0.2 percent in January. Wholesale inflation often acts as a leading indicator for consumer prices. Its recent uptick suggests that price pressures may be rebuilding in parts of the supply chain. This was the domestic inflation backdrop even before geopolitical risks intensified. The outbreak of conflict in the Gulf now complicates the picture further. For Pakistan, the most direct transmission channel is energy prices. The country remains heavily dependent on imported fuel, and global oil price movements pass through quickly into the domestic economy. Higher crude prices feed into transportation costs, electricity tariffs, fertilizer production, and eventually food prices through logistics and agricultural supply chains. Even modest increases in oil prices can therefore interrupt the disinflation process. The external sector provides another layer of risk. Pakistan’s recent stabilization has depended heavily on maintaining a contained current account deficit and rebuilding foreign exchange buffers. Higher oil prices would widen the import bill almost mechanically. At the same time, geopolitical instability in the Gulf could introduce uncertainty into remittance flows, which remain Pakistan’s most reliable external inflow. For monetary policy, these risks translate directly into exchange rate considerations. Pakistan’s inflation history shows that currency depreciation quickly feeds into domestic prices. When external uncertainty rises, the central bank tends to prioritize exchange rate stability when calibrating policy. Against this backdrop, the domestic economy continues to show signs of weakness. Private sector credit growth remains subdued despite the moderation in inflation over the past year. Businesses remain cautious about expanding investment in an environment characterized by regulatory uncertainty, heavy taxation, and fragile demand conditions. Under normal circumstances, such conditions would strengthen the case for monetary easing. However, monetary policy in Pakistan rarely operates on domestic considerations alone. External stability tends to dominate policy decisions when the balance of payments remains fragile. The central bank’s own communication already reflects this caution. In its recent statements, the Monetary Policy Committee acknowledged that while inflation has declined significantly, the outlook remains vulnerable to energy price shocks, exchange rate movements, and adjustments in administered prices. The Gulf conflict amplifies precisely these risks. If oil prices remain elevated for a sustained period, the inflation plateau now visible in the data could easily turn into renewed inflationary pressure. In such circumstances, the central bank will likely be reluctant to accelerate the easing cycle. This does not necessarily mean that interest rate cuts are off the table. If energy markets stabilize and the geopolitical shock proves temporary, the MPC could still continue with gradual easing later in the year. But the February inflation data already indicate that the next phase of disinflation will likely be slower and more uneven than the previous one. For policymakers, the experience of earlier cycles remains instructive. Pakistan has repeatedly seen inflation decline only to rise again when external shocks emerge. Premature monetary easing has often forced abrupt policy reversals. Having worked hard to stabilize inflation and the exchange rate over the past two years, the central bank is unlikely to risk undermining that progress. When the Monetary Policy Committee meets on Monday, the decision will therefore not simply hinge on where inflation stands today. It will depend on how policymakers assess the risks ahead. And those risks have suddenly become a lot more complicated.