Pakistan Inflation Rate MoM: December 2025 Analysis and Macro Outlook
The latest inflation rate month-over-month (MoM) for Pakistan, released on December 1, 2025, shows a significant moderation to 0.40%, well below market expectations of 1.20% and the previous month’s 1.80%. This report leverages the Sigmanomics database to contextualize this figure against recent trends and macroeconomic conditions, offering a forward-looking assessment of Pakistan’s inflation trajectory and its broader economic implications.
Table of Contents
Pakistan’s inflation rate MoM slowed sharply to 0.40% in December 2025, marking a notable deceleration from the 1.80% recorded in November and the 2.00% in October. This moderation follows a volatile year where inflation swings ranged from -0.80% in May to a peak of 2.90% in August. The current print is the lowest monthly increase since June’s -0.20%, signaling easing price pressures amid tightening monetary policy and subdued demand.
Drivers this month
- Energy prices stabilized after summer spikes, contributing a 0.10 percentage point (pp) reduction.
- Food inflation eased, with staple prices rising only 0.15 pp versus 0.50 pp last month.
- Transport costs remained flat, reflecting lower fuel price volatility.
Policy pulse
The 0.40% inflation MoM is comfortably below the State Bank of Pakistan’s target range of 5-7% annualized inflation, suggesting room for a cautious monetary stance. The central bank’s recent rate hikes appear to be tempering demand-driven inflation, though risks remain from fiscal deficits and currency volatility.
Market lens
Immediate reaction: The PKR/USD exchange rate strengthened by 0.30% within the first hour post-release, while 2-year government bond yields declined 10 basis points, reflecting eased inflation expectations. Breakeven inflation rates also dropped by 15 basis points, signaling market confidence in subdued near-term price pressures.
Core macroeconomic indicators provide essential context for the inflation print. Pakistan’s GDP growth slowed to an estimated 3.20% in Q3 2025, down from 3.80% in Q2, reflecting weaker domestic demand and external headwinds. Unemployment remains elevated at 7.50%, limiting wage-driven inflation pressures. The fiscal deficit widened to 7.10% of GDP in Q3, driven by higher subsidies and debt servicing costs.
Monetary policy & financial conditions
The State Bank of Pakistan has raised policy rates by 150 basis points since August 2025, aiming to anchor inflation expectations. Liquidity conditions tightened, with reserve money growth slowing to 5% YoY in November. Credit growth contracted by 1.20% YoY, indicating restrained borrowing amid higher interest rates.
Fiscal policy & government budget
Fiscal consolidation efforts remain challenged by rising debt service and subsidy burdens. The government’s budget deficit target of 6.50% of GDP for FY2026 appears at risk, with recent spending overruns. Persistent fiscal deficits could undermine monetary policy effectiveness and pressure the PKR.
This chart signals a clear easing of inflationary pressures after a summer peak. The downward trend in December suggests that monetary tightening and external price stabilization are beginning to take effect. However, the volatility underscores ongoing uncertainty in Pakistan’s inflation outlook.
Market lens
Immediate reaction: The PKR strengthened modestly, reflecting relief at lower inflation. Sovereign bond yields fell, indicating reduced inflation risk premia. Equity markets showed mixed responses, with financials outperforming amid expectations of stable interest rates.
Looking ahead, Pakistan’s inflation trajectory depends on several interacting factors. The baseline scenario projects inflation averaging 0.60% MoM in Q1 2026, supported by continued monetary discipline and stable commodity prices. However, risks remain skewed both ways.
Bullish scenario (20% probability)
- Global energy prices decline sharply, easing import costs.
- Fiscal consolidation accelerates, reducing demand-side pressures.
- PKR stabilizes, limiting imported inflation.
- Inflation averages 0.30% MoM or lower in Q1 2026.
Base scenario (55% probability)
- Monetary policy remains steady with cautious tightening.
- Commodity prices fluctuate moderately.
- Inflation averages 0.50-0.70% MoM in early 2026.
- Gradual return to the central bank’s 6% annual target.
Bearish scenario (25% probability)
- Fiscal slippage worsens, fueling demand pressures.
- PKR depreciates sharply due to external shocks.
- Food and energy prices spike amid geopolitical tensions.
- Inflation exceeds 1.00% MoM, risking a policy tightening cycle.
Pakistan’s December 2025 inflation rate MoM reading of 0.40% signals a welcome easing after months of elevated price pressures. The data suggests that monetary policy is gaining traction, though fiscal discipline and external stability remain critical. Market reactions indicate cautious optimism, but volatility in commodity prices and geopolitical risks could disrupt the fragile balance. Policymakers must remain vigilant to sustain the disinflationary trend while supporting growth.
Key Markets Likely to React to Inflation Rate MoM
Inflation data in Pakistan typically influences currency, bond, and equity markets. The PKR/USD forex pair often reacts sharply to inflation surprises, affecting import costs and capital flows. Sovereign bond yields adjust to inflation expectations, impacting borrowing costs. Select stocks in the financial and consumer sectors also track inflation trends closely. Below are five tradable symbols with historical sensitivity to Pakistan’s inflation dynamics:
- PKRUSD – Directly reflects currency strength and inflation impact on exchange rates.
- KSE100 – Pakistan’s benchmark equity index, sensitive to macroeconomic shifts.
- HBL – Major bank, impacted by interest rate and inflation changes.
- BTCUSDT – Crypto asset often viewed as inflation hedge globally.
- USDINR – Regional currency pair, reflecting broader South Asian inflation and currency trends.
Inflation vs. PKRUSD Exchange Rate Since 2020
Since 2020, Pakistan’s inflation rate MoM and the PKRUSD exchange rate have shown a strong positive correlation. Periods of rising inflation often coincide with PKR depreciation, reflecting imported inflation pressures and capital outflows. The chart below highlights this relationship, underscoring the importance of inflation control for currency stability.
Frequently Asked Questions
- What is the current inflation rate MoM for Pakistan?
- The latest inflation rate MoM for Pakistan is 0.40% as of December 2025.
- How does this inflation reading compare historically?
- It is the lowest monthly increase since June 2025 and significantly below the peak of 2.90% in August 2025.
- What are the main risks to Pakistan’s inflation outlook?
- Risks include fiscal slippage, currency depreciation, and external commodity price shocks.
Key takeaway: Pakistan’s inflation slowdown in December 2025 offers breathing room for monetary policy but requires sustained fiscal discipline and external stability to maintain momentum.
Sources
- Sigmanomics database, Pakistan Inflation Rate MoM, December 2025 release.
- State Bank of Pakistan, Monetary Policy Reports 2025.
- Pakistan Bureau of Statistics, Macroeconomic Indicators 2025.
- International Monetary Fund, Pakistan Country Report 2025.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
December’s inflation rate MoM of 0.40% contrasts sharply with November’s 1.80% and the 12-month average of 0.75%. This marks a reversal of the upward trend seen from August through November, where monthly inflation averaged 1.90%. The chart below illustrates this deceleration, highlighting the recent volatility in Pakistan’s inflation dynamics.
Compared to historical readings, December’s figure is the lowest since June’s -0.20% and well below the 2025 peak of 2.90% in August. This volatility reflects seasonal factors, commodity price swings, and policy interventions.