Waseem Hasil
In the vibrant bazaars of Lahore and the quiet streets of Turbat, the conversation is strikingly similar. Despite repeated assurances that the economic “storm has passed,” the cost of living still weighs heavily on ordinary families. Inflation in Pakistan has cooled from the painful peaks of recent years, but it has not disappeared.
As we move through early 2026, headline inflation stands around 5.8%. That number looks modest compared to the 30% surge witnessed in 2023. Yet for the working class, prices still feel uncomfortably high. Inflation has shifted from a raging wildfire to a slow and stubborn burn.
So why does this inflation ghost refuse to leave?
Energy costs keep pressure on prices
Energy remains the backbone of Pakistan’s inflation story. Electricity and gas tariffs continue to rise as the government works to contain circular debt and meet commitments to international lenders. These adjustments often set a floor under prices.
Even when global oil prices ease, domestic tariffs rarely fall. Authorities prioritize debt servicing and fiscal discipline. As a result, production costs remain elevated. When factories pay more for power, the price of flour, textiles, and manufactured goods inevitably rises.
Energy inflation feeds directly into food inflation and industrial inflation. Until structural reforms reduce circular debt and expand local energy production, this pressure will persist.
Food inflation reflects structural weakness
Pakistan is an agricultural country, yet food prices remain volatile. Climate-related disruptions, including flood-linked supply chain shocks in late 2025, exposed serious vulnerabilities.
Some items such as potatoes and onions have stabilized. However, essential goods like wheat, milk, and chicken continue to climb in price. The absence of modern cold-chain systems and storage facilities worsens the situation. Farmers often sell at low prices during harvest, while consumers later pay more due to artificial shortages.
Middlemen exploit weak market regulation. Seasonal shocks quickly translate into price spikes. Food inflation therefore remains a key driver of household stress.
Exchange rate pass-through still lingers
Pakistan imports fuel, machinery, chemicals, and industrial inputs. This import dependence makes inflation sensitive to the exchange rate.
Although the rupee has stabilized in 2026, the impact of earlier devaluations still lingers. Businesses that absorbed costs during the 300+ PKR/USD phase remain cautious. Many hesitate to lower prices, fearing another currency slide.
This pass-through effect slows price correction. Even when macroeconomic indicators improve, retail prices often stay elevated.
Inflation expectations shape pricing behavior
Psychology plays a powerful role in inflation dynamics. After the shock of hyperinflation in 2023, consumers and retailers adjusted their expectations. Shopkeepers now factor future uncertainty into present pricing.
Vendors maintain higher margins because they anticipate more expensive restocking. Consumers, expecting further increases, rush purchases. This behavior reinforces inflationary pressure.
Such inflation expectations create a self-fulfilling cycle. Breaking this cycle requires consistent policy signals and sustained stability.
Core inflation reveals deeper imbalance
Headline inflation has dropped sharply. However, core inflation, which excludes food and energy, remained near 7.4% in the first half of FY26. This indicates persistent increases in services, education, health, and housing.
Core inflation reflects structural imbalances. It signals that high interest rates alone cannot solve underlying inefficiencies. Structural reforms in taxation, governance, and productivity remain essential.
There are signs of progress
Despite these challenges, there is measurable improvement. The State Bank of Pakistan has maintained a disciplined monetary stance. Weekly readings of the Sensitive Price Indicator show relative stability compared to past volatility.
Economic growth is projected near 4.5% this year. That suggests recovery momentum is building. Stability in foreign exchange reserves and tighter fiscal management also strengthen confidence.
The inflation ghost has not vanished, but it has weakened.
A gradual exit, not a sudden relief
Inflation in Pakistan will not disappear overnight. It will fade gradually as structural reforms take root. Sustainable relief requires investment in domestic energy production, modernization of agriculture, improved storage systems, and reduced reliance on imports.
Until Pakistan strengthens its productive base, price stability will remain fragile. For millions of households, the cost of living will continue to shape daily decisions.
The country has moved past crisis mode. Now it must move toward resilience. Only then will the inflation ghost finally leave the house.