Finance Ministry projects August inflation at 4–5% amid flood concerns

ISLAMABAD: The Ministry of Finance on Thursday projected inflation to remain in the range of 4–5 percent in August 2025, warning that flood-related damages could add fiscal pressures and disrupt food supplies in affected regions.

In its Monthly Economic Update and Outlook, the ministry noted that Pakistan entered Fiscal Year 2025-26 with positive momentum, building on last year’s gains and supported by a stronger external and fiscal position.

“Pakistan’s economy started FY2026 with positive developments from the sustained improvements in FY2025, setting a promising tone for the months ahead,” the report stated.

It added that government measures to facilitate investment, reforms to support private sector-led growth, easing inflationary pressures, and accommodative monetary policy are expected to reinforce business confidence going forward.

A favourable global environment, stronger demand from trading partners, and the recent trade deal of Pakistan with the U.S. are expected to boost exports, while workers’ remittances will help contain trade deficit pressures from tariff rationalization–driven imports.

However, flood-related damages may add fiscal pressures and disrupt food supplies in affected areas, the report says, adding inflation is projected to remain within the range of 4.0-5.0 percent in August, 2025.

According to the report, the Consumer Price Index (CPI) inflation remained moderate, suggesting that inflationary expectations were well-anchored through a mix of administrative measures and policy reforms along with prudent economic management.

Read More: Weekly inflation rises amid surge in sugar, gas prices

The headline Inflation was recorded at 4.1 percent Year-on-Year basis (YoY) in July 2025, compared to 3.2 percent in June 2025 and 11.1 percent in July 2024. On Month-on-Month (MoM) basis, it increased by 2.9 percent, following a 0.2 percent increase in June 2025 and 2.1 percent increase in July 2024.

Likewise, in July FY2026, the external sector showed a favourable performance, with a narrower current account deficit and a stable exchange rate, while tax collection by Federal Board of Revenue (FBR) recorded significant growth.

These trends highlight a stable macroeconomic foundation at the beginning of FY2026, it says adding the stability achieved in FY2025 and sustained improvement in macroeconomic indicators prompted international credit rating agencies to upgrade Pakistan’s sovereign outlook, reaffirming confidence in the economic direction and reinforcing the credibility of ongoing reform efforts.

The report says, agricultural credit disbursement rose by 16.3% to Rs.2,577.3 billion in FY2025, while agricultural machinery imports surged 123.9% to $14.4 million in July FY2026.

The Large-Scale Manufacturing (LSM) sector registered a year-on-year (YoY) increase of 4.1 percent in June 2025 while month-on-month (MoM), it declined by 3.7 percent. Cumulatively, LSM output declined by 0.74 percent during FY2025, compared to a marginal growth of 0.78 percent last year.

The FY2025 concluded with notable improvement, supported by strong revenue growth and prudent expenditure control. The fiscal deficit narrowed to 5.4 percent of GDP from 6.9 percent in FY2024, the lowest in eight years.

The primary surplus rose significantly to Rs. 2,719.4 billion (2.4% of GDP) from Rs. 952.9 billion (0.9%), the highest in 24 years, driven by contained non-markup expenditures.
Total expenditure grew by 18.0 percent to Rs. 24,165.5 billion, with current spending increasing by 15.9 percent to Rs. 21,528.6 billion. This moderation created space for development, as federal PSDP rose sharply by 43.3 percent.

On the revenue front, tax collection grew by 26.2 percent, while non-tax revenues surged by 65.7 percent. In July FY2026, FBR’s tax collection increased by 14.8 percent to Rs. 757.4 billion, with the 12.5 percent increase in domestic tax and 31.2 percent rise in customs duty.

In July FY2026, the current account posted a deficit of $254 million, lower than the $348 million deficit recorded in July FY2025. Goods exports increased by 16.2 percent to $2.7 billion, while imports rose by 11.8 percent to $5.4 billion, resulting in a trade deficit of $2.7 billion compared to $2.5 billion last year.

On July 30, 2025, the Monetary Policy Committee kept the policy rate unchanged at 11%, citing a slight uptick in the inflation outlook due to higher-than-expected energy price adjustments, despite favorable June inflation figures.