Pakistan’s inflation rate dropped sharply to 4.7% year-on-year in May, down from 23.4% the previous year, signaling a major shift in the country’s economic outlook and easing pressure on consumers and businesses.
Finance Minister Muhammad Aurangzeb described the decline as a “fantastic story” during the presentation of the Pakistan Economic Survey 2024–25. He noted that the Consumer Price Index had crossed 29% in 2023 but has now plunged to just 4.6%. “So, I think we’ve moved in the right direction in terms of the global figures,” Aurangzeb said.
The drop in consumer price inflation marks the steepest year-over-year improvement in recent years. The shift follows months of stabilizing food and fuel prices, which had previously strained household budgets and eroded purchasing power for millions. With inflation now back in single digits, many Pakistanis are experiencing improved affordability of essential items and some relief from economic stress.
Aurangzeb credited a combination of tight monetary policy, improved exchange rate management, and fiscal consolidation efforts for the sharp reversal. He also emphasized the impact on everyday life, noting that lower inflation boosts real incomes and creates more economic space for savings, consumption, and investment.
The reduction in inflation has already prompted monetary policy shifts. After holding the benchmark interest rate at 22% for nearly a year to combat surging prices, the central bank recently cut it by 150 basis points, easing borrowing costs for consumers and businesses.
Economists say the price stability is also restoring confidence among investors. Pakistan’s main stock index, the KSE-100, surged by over 50% in the past fiscal year, reflecting stronger market sentiment amid signs of macroeconomic recovery.
The survey also reported a 9.7% rise in per capita income, which increased from $1,662 to $1,824. Officials attributed the gain to steady performance in the services and agriculture sectors, along with improvements in foreign exchange reserves and the current account balance.
Despite the progress, challenges remain. Structural reforms in energy pricing, taxation, and state-owned enterprises have yet to be completed. Unemployment and poverty rates remain elevated, and the country continues to face external financing pressures.
Still, policymakers are hopeful that the current trajectory marks a turning point. “This is not just a statistical improvement—it’s a change that is beginning to reach the lives of our citizens,” Aurangzeb said.
The government is expected to release the federal budget for the next fiscal year this week, which officials say will prioritize growth, investment, and social support measures while maintaining fiscal discipline.