Steep inflation anticipated to reach an eleven-month peak due to a surge in food prices caused by recent flooding in Pakistan
Pakistan is currently grappling with a dual crisis: a resurgence in inflation and the ongoing impact of severe flooding during the monsoon season. The inflation calculator for September 2025 is projected to show a monthly increase of +3.1%, marking the highest Month-on-Month (MoM) increase in 26 months. This increase is primarily driven by an expected rise of 8.75% in the food segment. The report also suggests that the expected MoM rise in the food segment could be an all-time high. Key contributors to the monthly inflation are tomatoes (+122%), wheat (+49%), wheat flour (+39%), onions (+35%), potatoes (+5.4%), rice (+4.3%), chicken (+4.1%), eggs (+3.5%), and sugar (+2.7%). The resurgence in food inflation for September 2025 is primarily due to supply-side effects on food products resulting from the ongoing floods in Pakistan. Contrarily, vegetable prices are expected to be down by ~10% MoM. Inflation expectations for September 2025 are 6.5-7.0%, a significant increase from the 3% recorded in August 2025 and higher than the 6.93% in September 2024. With these expectations, real rates are projected to surge to 400-450bps, higher than Pakistan's historic average of 200-300bps. A significant shift in global commodity prices remains a major variable that could alter the inflation calculator moving forward, as warned by Topline. The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 11%. In the housing, water, electricity, and gas category, a 2.19% MoM decline in electricity charges and a 2.75% rise in Liquefied Petroleum Gas (LPG) are expected to result in a 0.24% MoM decline in September. It is important to note that the report mentions a decline in electricity due to a Quarterly Tariff Adjustment (QTA) of Rs1.8881/kWh for August-October and a Fuel Charges Adjustment (FCA) of Rs-1.7856/kWh (vs. Re0.7772/kWh in August 2025). Pakistan's headline inflation for September 2025 is expected to be between 6.5% and 7%, a significant increase from the 3% recorded in August 2025 and higher than the 6.93% in September 2024. The YoY (Year-on-Year) inflation reading for September 2025, as per the report, is likely to be the highest in 11 months. The bank that made the forecast of a rising inflation rate of 6.5–7% year-on-year for Pakistan in September 2025 is the brokerage house Topline Securities. A challenging period lies ahead for Pakistan as it navigates these economic and environmental challenges.
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