Fuel price surge to push Pakistan inflation higher in March

Pakistan’s headline inflation is expected to accelerate in March, driven largely by a low base effect and rising energy and fuel costs, brokerage houses said in separate research notes.

Arif Habib Limited said it expects consumer price inflation to settle around 7.6% year-on-year in March, compared with just 0.7% in the same month last year, when prices were unusually subdued.

“The higher year-on-year reading is largely attributable to a low base effect,” the firm said, adding that inflation pressures remain broad-based across sectors.

Core inflation, which excludes food and energy, is projected at 8.3% year-on-year, easing from 9.2% a year earlier. On a cumulative basis, average inflation for the first nine months of fiscal year 2026 is expected at 5.7%, slightly higher than 5.4% in the same period last year.

On a monthly basis, Arif Habib Limited estimates inflation rose 1.5% in March, driven by increases in housing and transport costs. The housing index is expected to climb 1.8% month-on-month due to higher electricity charges, while transport costs are seen surging 15.6% amid fuel price increases.

Food prices, however, offered some relief, with the index projected to edge down 0.1% month-on-month due to declines in tomatoes, wheat and vegetables.

Separately, Sherman Securities projected headline inflation at 8.0% year-on-year in March, up from 7.0% in February, citing similar pressures from energy and transport.

“The increase in headline inflation is primarily attributable to the housing index due to higher electricity charges, further supported by a sharp surge in transport index due to rising fuel cost,” Sherman Securities said.

The firm estimated monthly inflation at 1.9%, led by a sharp 22.2% jump in transport costs following a roughly PKR 55 per liter increase in petrol and diesel prices amid rising global oil prices linked to geopolitical tensions.

Fuel prices have climbed to PKR 321 per liter for petrol and PKR 335 for diesel, marking the highest levels since October 2023 for petrol and a record high for diesel, the firm said.

Food inflation remains relatively contained, rising an estimated 4.3% year-on-year in March, with average food inflation at 3.59% during the July-March period. On a monthly basis, food prices are expected to increase modestly, with higher fruit and chicken prices offset partly by declines in tomatoes and wheat flour.

Both firms warned that fuel price dynamics remain a key risk. Sherman Securities noted that government subsidies — estimated at around PKR 115 per liter — are straining fiscal resources and may not be sustainable.

“If the conflict continues and international prices remain elevated, the government may increase fuel prices further,” the firm said, adding that such a move could push inflation above the State Bank of Pakistan’s 5–7% target range for fiscal 2026 and limit room for interest rate cuts.