The State Banka of Pakistan (SBP) has warned that inflation could remain above seven percent during the remaining months of fiscal year 2026 and continue into FY27 amid geopolitical tensions and rising oil prices.
In its monetary policy statement released after Monday’s Monetary Policy Committee meeting, SBP said the evolving international and domestic economic environment had clouded the inflation outlook for the country.
The bank identified multiple risks that could push inflation higher, including volatility in food prices, potential adjustments in domestic energy tariffs, and uncertainties linked to ongoing geopolitical developments affecting the economy.
Food and Energy Trends Affect Consumer Prices
Headline inflation rose to seven percent year on year in February, largely due to the fading impact of the previous low base in food and energy prices, along with changes in electricity charges.
Core inflation, which excludes volatile food and energy prices, increased to around 7.6 percent, indicating persistent underlying price pressures across the broader economy during the month.
The MPC assessed that the expected increase in domestic energy prices could be partially offset by favorable trends in food prices, supported by improved supply of essential items and stronger prospects for agriculture production.
The committee also observed that relatively anchored inflation expectations and a generally stable price environment are likely to limit the secondary effects of rising domestic fuel costs on overall inflation.
SBP Maintains Cautious Outlook for FY26–FY27
However, the central bank noted that this assessment remains subject to significant risks, particularly from the evolving geopolitical situation, volatile food prices, and potential unanticipated adjustments in administered energy costs.
Taking these factors together, the committee concluded that inflation may remain above seven percent for the rest of FY26 and continue into FY27, reflecting ongoing vulnerabilities in the economic environment.
In its January 2026 meeting, the MPC had expected inflation for both consumers and businesses to continue easing and projected stabilisation within the target range of five to seven percent during FY26 and FY27.
The January statement had also warned that inflation could temporarily exceed the upper bound of the target range for a few months, depending on fluctuations in global commodity and domestic wheat prices.
Unlike previous meetings, the latest policy statement did not provide a revised inflation range, while reaffirming that the outlook remained exposed to risks from administered energy price adjustments and stronger-than-expected domestic demand.
