The Monthly Economic Update and Outlook by the Ministry of Finance (MoF) indicates that inflation was projected to rise during May and June 2025.

 

For May, inflation is expected to sit between 1.5 percent to two percent, wheras it could rise to three to four percent by June. Reports have highlighted that estimates for the current and upcoming months are significantly higher compared to the “record low” 0.3 percent inflation rate recorded in April.

 

While inflation rates seem to be subdued, earlier reports indicated that the decline in inflation rates can be chalked up to the ‘base effect’ of the inflation rate the economy experienced in the previous periods.

 

The base effect in this context entails that subsequent increases in the prices of goods and services have been limited after inflation rates touched their peak of almost 38 percent in May 2023. However, the effect of inflation from the previous period reportedly continues to diminish the purchasing power of Pakistani citizens and businesses alike. 

 

Details in the MoF’s monthly update also suggest that Large-Scale Manufacturing (LSM) remains subdued. However, the LSM sector is expected to improve its output in the next few months despite contractions in the sector on both year-on-year (YoY) and month-on-month (MoM) terms.

 

As per reports, high-frequency indicators have been moving in the right direction, suggesting optimism in the sector. Improvements in the aforementioned indicators include the State Bank of Pakistan’s (SBP) expansionary monetary policy, imports of raw materials and an increase in automobile output levels.

 

The SBP raised interest rates to an extortionate 22 percent in an attempt to rein in inflation rates. This measure curbed demand for consumer and business loans, resulting in a slowdown in the LSM sector.

 

However, the SBP has slashed policy rates by a staggering 1,100 basis points over the past year, easing borrowing costs for manufacturers, which could help increase production levels. Moreover, consumers can avail themselves of lower rates while purchasing these goods, resulting in increased demand for LSM sector products.

 

Aside from inflation rates, the MoF also outlined how the increased availability of water and improved weather conditions could boost crop output levels. If the agricultural sector witnesses growth owing to better natural conditions, it could translate into higher economic growth.