Business Recorder
EDITORIAL: Pakistan Bureau of Statistics (PBS) calculated Consumer Price Index for March at 7.3 percent, up from February’s 7 percent, a rise of 0.3 percent, year on year, while month-on-month the rise was higher – from 0.3 percent in February to 1.2 percent in March or a rise of 0.9 percent. Core inflation urban rose month-on-month from 0.2 percent in February to 0.7 percent in March, a rise of 0.5 percent, while rural rose from 0.4 percent to 0.8 percent in March, an increase of 0.4 percent. In other words, CPI includes the actual cost of living of households, given the price volatility associated with food and energy exacerbated due to the ongoing Middle East conflict while core inflation a more stable long-term price trend. Post-2019, under an International Monetary Fund’s (IMF’s) Extended Fund Facility programme, subsequent to the appointment of a serving Fund staff member as the Governor State Bank of Pakistan, the Monetary Policy Committee (MPC) abandoned its decades-long policy linking the policy rate to core inflation and, instead, linked it to the CPI. This decision accounted for raising the rate to 13.25 percent on 16 September 2019, a contractionary policy that woefully crippled growth. The subsequent onset of Covid-19 with the Fund staying its harsh upfront programme conditions till after the pandemic was dealt with led to the easing of the policy rate. At present, however, it is not quite clear whether the MPC is guided by CPI or core though the emerging consensus is that guidance is provided by the IMF, which is followed by the MPC for the following reason: since 2019 the Fund has indicated in all the three programme loans that a staff-level agreement would not be reached until and unless the agreed conditions are adhered to, which is critical for the country as friendly countries and multilaterals/bilateral lenders have indicated that rollovers and loans would only be secured if the government stayed on an active IMF programme. PBS data notes that while CPI was a high of 27.06 percent in July-March 2024-25, it declined dramatically to 5.25 percent in the same period in 2024-25 and has remained stable at this rate reaching 5.67 percent in 2025-26. The picture that has emerged for Sensitive Price Index is different for the current year – it registered a high of 31.26 percent in July-March 2023-24, declined to 5.84 percent in 2024-25 but unlike the rise in CPI in the current year SPI actually declined to 3.49 percent in 2025-26. A similar picture has been calculated for Wholesale Price Index – from 23.43 percent in 2023-24 to 2.08 percent in 2024-25 to only 1.08 percent in the current year – a claim that is challenged by several major manufacturing sectors, lamenting the massive rise in input costs, especially, compared to regional competitors that account for massive factory closures. This brings to mind the data integrity concerns voiced by the IMF, which noted important shortcomings that remain in the source data available for sectors accounting for around one-third of GDP, while there are issues with the granularity and reliability of the Government Finance Statistics. Be that as it may, the government appears to have somewhat controlled domestic fuel prices amid a hike in their international prices subsequent to the ongoing conflict through extending subsidies financed by the implementation of severe austerity measures, setting up an austerity fund, slashing Public Sector Development Programme and seeking provincial financial support to fund subsidies. However, with a narrow fiscal space it is unclear for how long the government would be able to fund subsidies and critically how long would the Fund allow the government to extend these subsidies. The IMF’s website has noted that the Fund is supporting its members—especially the most vulnerable—with policy advice, capacity development and, where needed and in coordination with the international community, financial assistance. Pakistan, under the ongoing programme is already following policy advice and capacity building; however, it remains to be seen whether the authorities will be able to successfully persuade the Fund staff to provide access to more financial assistance or phase out the harsh upfront conditionalities till the Middle East conflict is over. Copyright Business Recorder, 2026
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