Pakistan's inflation rate has dropped to 0.7% in March 2025, the lowest in decades. However, wages remain stagnant, and essential costs are still high, leaving many struggling financially. ---------------------------------------------------------------------------------------------------------------------------
00:00Pakistan's inflation rate has dropped to its lowest level in decades, just 0.7% year-on-year as of March 2025.
00:07But if prices are rising slower, why does everything still feel expensive?
00:11This phenomenon is called disinflation, a reduction in the rate of inflation.
00:14Not to be confused with deflation, where prices actually fall.
00:18Disinflation simply means that prices are rising more slowly than before.
00:22On paper, that sounds like good news, but for most Pakistanis, it's not translating into relief.
00:27Let's rewind.
00:28In 2020, inflation stood at 8.6%.
00:31By mid-2023, it had soared to 38%, the highest on record.
00:36This spike was driven by supply chain disruptions, political instability, external debt pressures, and soaring global commodity prices.
00:43Electricity, food, and fuel costs played a major role.
00:46In June 2022, for example, consumer prices jumped 6.3% in just one month, 81% of which came from those three sectors alone.
00:54By the end of 2023, the rupee had dropped from 226 to around 282 per US dollar, making imports, particularly energy and food, even more expensive.
01:04So how did we get from 38% to 0.7%?
01:07Analysts point to a mix of domestic and global factors.
01:10The State Bank of Pakistan, or SPP, raised interest rates to 22%, part of its efforts to cool demand.
01:16Money supply growth also slowed.
01:18At the same time, an IMF bailout helped stabilize the exchange rate.
01:22Globally, oil prices fell and wheat supplies improved.
01:24Between September 2023 and March 2024, Pakistan imported 3.5 million tons of wheat at lower prices, easing food inflation.
01:33But while inflation may be slowing, prices remain high, and real household purchasing power has not recovered.
01:39Wages haven't kept pace, and the burden of inflation has already done its damage, especially for those in low- and middle-income brackets.
01:46The salaried class has also faced increasing pressure from taxation.
01:50Workers paid over 331 billion rupees in taxes last year.
01:54With little sign of improved public services or social protection in return.
01:58So even as inflation slows, disposable income remains under strain.
02:01The IMF program launched in 2023 has focused on fiscal consolidation, higher taxes, fewer subsidies, and reduced public spending.
02:09While this has helped stabilize the economy, on paper, it has also made life harder for vulnerable households.
02:15Pakistan is not alone in facing these challenges.
02:17In Turkey, inflation peaked at 75% in 2024, and still remains above 40% today.
02:23Loose fiscal policy, wage hikes, and delayed interest rate action have kept inflation persistently high.
02:28In Egypt, a 40% currency depreciation in 2024 drove up the cost of food and fuel, essentials that dominate household budgets.
02:36So while global trends matter, Pakistan's issues are largely internal, from structural weaknesses to policy delays.
02:41Poverty now affects 40% of the population, and essentials like food still take up a large share of household income.
02:47Disinflation makes for great headlines, but it doesn't mean things are actually getting better.
02:51Without improvements in wages, employment, and public services, the impact of high inflation lingers.
02:56Going forward, Pakistan needs more than temporary fixes.
02:59It needs long-term strategies focused on boosting domestic production, creating sustainable jobs, reforming the tax system,
03:06investing in social safety nets, and addressing climate-related risks that threaten agriculture and industry.
03:11Until these changes take root, the promise of low inflation will remain just that, a promise.
03:17Because while the rate of price rises may be falling, the cost of living crisis is far from over.
03:22And that's the gist of Yusuf Nazar's Business and Finance Weekly article.
03:25Subscribe to DonU's English to see more explainers on Pakistan's economy and policy landscape.
