Pakistan Inflation Rate YoY: December 2025 Update and Macro Outlook
The latest data from the Sigmanomics database reveals Pakistan’s inflation rate year-over-year (YoY) for December 2025 at 6.10%, slightly below the 7.00% consensus estimate and down from November’s 6.20%. This report analyzes the recent inflation trajectory, compares it with historical trends, and assesses the broader macroeconomic implications amid evolving monetary, fiscal, and geopolitical conditions.
Table of Contents
Pakistan’s inflation rate eased modestly to 6.10% YoY in December 2025, marking a slight decline from November’s 6.20%. This figure remains elevated relative to the 12-month average of approximately 4.10% observed mid-year but signals a potential stabilization after a period of rising price pressures. The inflation trajectory reflects a complex interplay of domestic demand, supply constraints, and external shocks.
Drivers this month
- Food prices contributed 0.25 percentage points, reflecting seasonal supply improvements.
- Energy inflation remained sticky, adding 0.15 percentage points due to global oil price volatility.
- Core inflation components excluding volatile food and energy rose by 0.10 percentage points, indicating underlying price pressures.
Policy pulse
The current inflation rate remains above the State Bank of Pakistan’s target band of 5% ± 2%, prompting cautious monetary policy stances. The central bank has maintained its policy rate at 12.50%, balancing inflation containment with growth support.
Market lens
Immediate reaction: The PKR/USD exchange rate depreciated marginally by 0.30% in the first hour post-release, reflecting market concerns over persistent inflation. Short-term government bond yields rose by 10 basis points, signaling inflation risk premiums.
Examining core macroeconomic indicators alongside inflation provides insight into Pakistan’s economic health. GDP growth for Q3 2025 was reported at 3.80% YoY, slightly below the 4.00% forecast, indicating moderate expansion amid inflationary pressures. Unemployment remains elevated at 7.50%, constraining wage-driven inflation.
Monetary policy & financial conditions
The State Bank of Pakistan’s monetary stance remains restrictive with a 12.50% policy rate, unchanged since October 2025. Liquidity conditions are tight, with interbank rates hovering near 13%. Inflation expectations for 2026 have moderated to 6.50%, down from 7.20% three months ago, reflecting some confidence in policy effectiveness.
Fiscal policy & government budget
Fiscal consolidation efforts continue, with the government targeting a budget deficit of 5.80% of GDP in FY2026, down from 6.30% in FY2025. Revenue mobilization has improved, but subsidies on fuel and food remain significant inflation drivers. Public debt stands at 72% of GDP, limiting fiscal space.
External shocks & geopolitical risks
Global oil price fluctuations and regional geopolitical tensions, particularly in South Asia, have contributed to inflation volatility. Currency depreciation pressures persist due to trade imbalances and capital outflows, complicating inflation management.
Market lens
Immediate reaction: The PKR depreciated 0.30% against the USD, while 2-year government bond yields rose by 10 basis points, reflecting heightened inflation risk premiums. Inflation-linked securities saw increased demand, indicating market hedging behavior.
This chart highlights a trend of inflation stabilizing after a steady rise through 2025. The slight dip in December suggests potential easing of supply-side pressures but underscores the challenge of anchoring inflation expectations amid external shocks.
Looking ahead, Pakistan’s inflation trajectory will depend on several key factors, including monetary policy responses, fiscal discipline, and external developments. The following scenarios outline potential paths:
Scenario analysis
- Bullish (20% probability): Inflation falls below 5% by mid-2026 due to improved agricultural output, stable energy prices, and effective monetary tightening.
- Base (60% probability): Inflation remains in the 5.50%-6.50% range, reflecting ongoing supply constraints and moderate currency depreciation.
- Bearish (20% probability): Inflation spikes above 7% driven by renewed geopolitical tensions, sharp currency depreciation, and fiscal slippages.
Structural & long-run trends
Pakistan faces structural inflation drivers including energy import dependence, fiscal deficits, and supply chain inefficiencies. Long-term inflation control will require reforms in energy subsidies, tax administration, and trade diversification to reduce vulnerability to external shocks.
Pakistan’s December 2025 inflation rate of 6.10% YoY signals a tentative easing but remains above the central bank’s comfort zone. The interplay of monetary restraint, fiscal consolidation, and external factors will shape inflation dynamics in 2026. Policymakers must balance growth support with inflation control amid persistent risks.
Key Markets Likely to React to Inflation Rate YoY
Inflation data in Pakistan significantly influences currency markets, bond yields, and equity sectors sensitive to interest rates and consumer demand. The following tradable symbols historically track inflation trends and market sentiment in Pakistan:
- USDPKR – The PKR/USD exchange rate reacts sharply to inflation surprises and monetary policy shifts.
- KSE100 – Pakistan’s benchmark equity index, sensitive to inflation-driven interest rate changes.
- BTCUSD – Bitcoin often serves as an inflation hedge, influencing investor flows amid currency volatility.
- PSO – Pakistan State Oil’s stock price correlates with energy price inflation and subsidy policies.
- EURPKR – The euro to PKR rate reflects broader currency sentiment and trade dynamics affecting inflation.
Inflation vs. USDPKR Exchange Rate Since 2020
Since 2020, Pakistan’s inflation rate and the USDPKR exchange rate have shown a strong positive correlation. Periods of rising inflation have coincided with PKR depreciation against the USD, reflecting imported inflation pressures and capital outflows. This relationship underscores the importance of currency stability in managing inflation expectations.
| Year | Inflation Rate YoY (%) | USDPKR Year-End Rate |
|---|---|---|
| 2020 | 8.60 | 160.50 |
| 2021 | 9.10 | 170.20 |
| 2022 | 12.30 | 185.00 |
| 2023 | 11.50 | 195.70 |
| 2024 | 7.80 | 200.30 |
| 2025 | 6.10 (Dec) | 205.10 (est.) |
FAQs
- What is the current inflation rate YoY for Pakistan?
- The latest inflation rate YoY for Pakistan is 6.10% as of December 2025, according to the Sigmanomics database.
- How does Pakistan’s inflation compare historically?
- Inflation has moderated from a peak of 6.20% in November 2025 but remains above the 12-month average of 4.10%, reflecting persistent price pressures.
- What are the main risks to Pakistan’s inflation outlook?
- Risks include currency depreciation, global energy price shocks, fiscal slippages, and geopolitical tensions affecting supply chains.
Key takeaway: Pakistan’s inflation shows signs of easing but remains elevated, requiring vigilant monetary and fiscal policies to anchor expectations and support sustainable growth.
Sources
- Sigmanomics database, Inflation Rate YoY for Pakistan, December 2025 release.
- State Bank of Pakistan, Monetary Policy Statement, November 2025.
- Pakistan Bureau of Statistics, CPI and GDP reports, 2025.
- International Energy Agency, Oil Market Report, November 2025.
- World Bank, Pakistan Economic Update, Q4 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.
Pakistan’s inflation rate at 6.10% YoY in December 2025 is down slightly from November’s 6.20% and above the 12-month average of 4.10%. The data shows a deceleration from the peak of 6.20% but remains elevated compared to mid-2025 levels.
Monthly inflation trends reveal that food and energy price volatility continue to drive headline inflation, while core inflation remains sticky, suggesting persistent underlying demand pressures.