Pakistan Inflation is expected to clock in at 3.75-4.25% in Aug 2025; MoM inflation is likely at +0.3%, according to the report of Topline Pakistan Research. Pakistan’s Consumer Price Index (CPI) for Aug 2025 is expected to clock in at 3.75-4.25% YoY vs. 9.63% in Aug 2024 and 4.07% in Jul 2025. The MoM inflation in Jul 2025 is expected to clock in at +0.3%.

The MoM is positive due to a rise of 2.34% in the transport segment, led by an increase in diesel prices by 4.7% MoM. The food segment is expected to remain flattish, we expect -0.05% as a rise of 26.2%, 15.24%, and 9.5% rise in Tomatoes, Onions, and Eggs respectively, is expected to be offset by decline in Fresh Fruits, Sugar, and Chicken by 9.9%, 4.7%, and 4.4%, respectively.

The housing, water, electricity, and gas category is expected to fall by 0.37% MoM in Aug due to a 9.8% MoM decline in Liquefied Petroleum Gas (LPG) prices. Electricity charges are also likely to decrease by 1.36% MoM as a new quarterly tariff adjustment (QTA) has been introduced of –Rs1.8881/kWh from Aug-Oct, besides the Aug 2025 FCA of Rs-0.7772/kWh (vs. Rs-0.4952/kWh in Jul 2025 FCA).

Looking ahead, we expect average inflation in FY26 to settle around 6–7%. This aligns with the central bank’s target range of 5–7%.

Real Rate in Aug 2025: With inflation expectations of 3.75-4.25% for Aug 2025, real rates will surge to 675-725bps, significantly higher than Pakistan’s historic average of 200-300bps. However, on a full-year inflation target range of 6-7%, the real rates would be 400-500bps.

Interest rate outlook: We maintain our view that the central bank has further room to cut 50-100bps in interest rates. We expect interest rates to bottom out at 10% by December 2025.

Key Risks: A significant shift in global commodity prices remains a major variable that could alter the inflation trajectory moving forward.