For the first time in nearly seven years, Pakistan’s short-term inflation rate has turned negative, indicating a potential shift in the country’s economic trajectory. According to the Pakistan Bureau of Statistics (PBS), the Sensitive Price Index (SPI) for the week ending March 6, 2025, recorded a year-on-year decrease of 0.87%.

Key Highlights:

  • Year-on-Year Deflation: The SPI, which monitors the prices of 51 essential items across 17 cities, showed a 0.87% decline compared to the same week in the previous year.
  • Weekly Comparison: On a week-on-week basis, the SPI decreased by 0.09% during the same period.

Contributing Factors:

  • High Base Effect: The significant decline in short-term inflation is largely attributed to the high base effect from the previous year, where inflation rates were considerably elevated.
  • Stabilizing Commodity Prices: Prices for most essential commodities remained steady, with notable exceptions like wheat flour experiencing slight increases.

Broader Economic Context:

This development aligns with recent trends in Pakistan’s economic indicators:

  • Consumer Price Index (CPI): In February 2025, the annual inflation rate dropped to 1.5%, marking the lowest level in nearly a decade. This significant decrease from 23.1% in February of the previous year is attributed to economic stabilization efforts under a $7 billion facility from the International Monetary Fund (IMF).
  • Monetary Policy: Reflecting the cooling inflation, Pakistan’s central bank recently paused its series of rate cuts, maintaining the key interest rate at 12%. The decision was influenced by persistent price risks and concerns over currency stability and the trade deficit.

Implications:

The negative short-term inflation rate suggests potential stabilization in Pakistan’s economy. However, economists emphasize the need for complementary economic reforms, including tax reforms, privatization, and energy sector viability, to achieve sustainable growth targets.

As the country navigates this period of economic adjustment, continuous monitoring of inflation trends and proactive policy measures will be crucial to maintain and build upon these gains