Pakistan is currently undergoing what policymakers term “disinflation” — a slowing in the rate at which prices rise. On paper, the consumer price index (CPI) has fallen to a three-decade low of 0.7 per cent year-on-year as of March 2025, down from 1.5pc in February and a staggering 20.7pc in March 2024. Yet for millions of Pakistanis, this headline figure masks a far grimmer reality.
In 2020, inflation was a manageable 8.6pc, but by mid-2023 it had soared to 38pc — a record-high level fuelled by a confluence of supply shocks, political mismanagement, and an external debt crisis. In May 2022, the CPI jumped from 13.8pc to 21.3pc in June, with a monthly increase of 6.34pc — 81pc of which was driven by food, utilities and transport. In October 2022, a further 5.1pc monthly rise was recorded, with food prices responsible for 59pc of the surge and electricity and gas charges adding another 32pc.
The Pakistani rupee, once held at 226.43 per US dollar, depreciated to roughly 281.86 per dollar by the end of 2023. This, coupled with a 66.9pc surge in Brent crude oil prices in 2022, dramatically inflated the cost of imported essentials such as energy and food. Political instability and delayed International Monetary Fund (IMF) funding meant that at one point, foreign exchange reserves were barely sufficient to cover two weeks’ worth of imports. Core inflation — excluding volatile items — spiked above 22pc by mid-2023 underscoring deep-seated structural issues that mere headline disinflation cannot resolve.
Between late 2023 and early 2025, Pakistan’s inflation rate contracted precipitously — from 38pc in May 2023 to 2.4pc by January 2025. Many credit the State Bank of Pakistan’s (SBP) aggressive monetary tightening, including interest rate hikes that reached 22pc in mid-2023. However, sceptics argue that the transmission lag for monetary policy is typically 18 months or more. In truth, external factors — such as falling global commodity prices and a stabilised rupee following an IMF bailout — have played a major role.
Beneath the veneer of slowing inflation lies a harsh reality of millions burdened by poverty and heavy taxation
Global oil prices fell from an average of $92.3 per barrel in FY22 to $83.5 in FY24, while wheat prices stabilised after record highs triggered by the Russian invasion of Ukraine and adverse weather. More than 3.5 million tonnes of wheat were imported between September 2023 and March 2024 at lower international rates, easing some imported inflation pressures.
Meanwhile, the SBP’s measures — including curbing money supply growth (with M2 slowing from 16.7pc in FY23 to 14.7pc in FY24) and intervening in the foreign exchange market — have contributed to easing inflation. Yet these efforts have not altered the underlying trend: prices remain high, and the slower rate of increase has done little to restore real household purchasing power.
Compounding the economic malaise, recent reports reveal that the salaried class in Pakistan has been hit hard by the tax regime, with workers collectively paying up to Rs331 billion in taxes. For a segment already reeling from eroded purchasing power due to rampant inflation, this massive tax outlay further diminishes disposable income and exacerbates the strain on families, leaving little scope for savings or additional spending despite the slowing rate of price rises.
Pakistan’s plight is not unique. Comparative evidence from neighbouring economies illustrates similar, though distinct, challenges. Despite experiencing a peak inflation of 75pc April 2024, Türkiye’s inflation — although still above 40pc in early 2025 — has moderated somewhat. Expansive fiscal policies, aggressive wage hikes and delayed interest rate adjustments, compounded by political interference in monetary policy, have kept inflation persistently high.
In Egypt, a 40pc depreciation of the local currency in 2024 spurred significant imported inflation. As one of the world’s largest wheat importers — reliant on imports for 50-60pc of its wheat — food inflation remains acute, with food consuming about 31pc of household spending. Successive fuel price hikes — with increases from 10-17pc in November 2024 — have further intensified domestic inflation.
While the headline figures suggest a victory over inflation, the real story is one of continued hardship. Although the rate of price rises has slowed, real wages have not rebounded, leaving millions to cope with the lingering effects of past inflation that have already eroded their purchasing power.
Poverty rates remain high, with estimates suggesting that as many as 40.5pc of the population live in poverty. Essential goods — particularly food — continue to consume a large share of household budgets, offering little respite from the struggle to make ends meet.
The IMF programme introduced in 2023, with its push for fiscal consolidation through tax hikes, subsidy cuts and public sector spending reductions, has been a mixed blessing. While it has helped stabilise the macroeconomic environment, the accompanying austerity measures have imposed severe hardships on vulnerable segments of the population, as evidenced by the heavy tax burden on the salaried class.
Structural reforms in the energy and public sectors are imperative to reduce fiscal burdens; however, until such reforms yield tangible benefits — such as improved wages, reduced unemployment and enhanced public services — the promise of disinflation will remain largely cosmetic.
Pakistan’s future hinges on a delicate balancing act. Short-term stabilisation through fiscal tightening and monetary intervention must be paired with long-term strategies aimed at boosting domestic production, creating employment opportunities and reducing structural inequality.
With a growing population and escalating urbanisation, pressures on housing, infrastructure and public services are set to intensify. Climate change, too, looms as a potential disruptor of agriculture and industry, adding yet another layer of complexity to an already fragile economic landscape.
The dramatic fall in the inflation rate from 38pc at its peak to as low as 2.4pc, or even 0.7pc in recent measures, might appear headline-grabbing. Yet beneath this veneer of disinflation lies a harsh reality: prices remain high, real wages continue to stagnate, and millions are burdened by poverty and heavy taxation.
When viewed alongside the experiences of Türkiye and Egypt, it is evident that while global commodity cycles play a role, the primary impediments to genuine economic relief are internal policy failures and deep structural challenges. Until these issues are addressed and sustainable growth is fostered, the promise of lower inflation will remain a mirage.
The writer is former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’
Published in Brackly News, The Business and Finance Weekly, April 7th, 2025