Pakistan to face food price hike, economic disruption after floods: report

As devastating monsoon floods sweep through parts of Punjab and Khyber Pakhtunkhwa, Pakistan’s economy faces renewed pressure, particularly in the form of rising food prices and disruptions across key sectors, Taurus Securities said in a detailed research report this week.

According to the brokerage firm, food inflation is expected to rise in September 2025, driven by significant crop losses, supply chain interruptions, and infrastructure damage in agricultural regions.

“Based on initial estimates and taking cues from trends observed after the 2022 floods, we anticipate food inflation to pick up from September onward,” Taurus Securities stated. “Prices of essential fruits and vegetables have already soared.”

Sharp rise in food prices expected

Taurus Securities pointed out that while food inflation had been slowing for nearly a year —averaging just 0.4% month-on-month (MoM) from August 2024 to June 2025 — it posted a sharp 3% increase in July. The report flags wheat, rice, potatoes, onions, tomatoes, milk, and eggs as especially vulnerable to further price hikes.

Drawing a comparison with the post-flood period of 2022, Taurus Securities recalled that perishable food items then rose 4.8% MoM, while non-perishables rose 2.5% MoM between July and December.

The brokerage now projects an increase of 7.8% year-on-year in the national consumer price index (NCPI) for FY26, with softening fuel prices offering only partial relief.

“Any significant crop damage, especially in Sindh and Punjab, presents a key upside risk to our inflation projections,” the report added. “In this context, we do not foresee any reduction in interest rates for the remainder of the fiscal year.”

Balance of payment and GDP growth at risk

The flooding is also likely to affect Pakistan’s external accounts, with a potential rise in food imports due to domestic shortages and a decline in export proceeds, particularly for rice and fruit.

“The import bill could rise if local supplies fall short, while exports may decline as crop damage reduces production capacity,” Taurus Securities said.

On the GDP front, Taurus noted that while it’s too early to quantify economic losses, the experience of 2022 — where the GDP shrank by $15.2 billion — offers a cautionary benchmark. Current damage levels, the firm said, strongly suggest that the FY26 agriculture growth target is unlikely to be met, which would in turn pull down overall GDP growth.

Impact across agriculture, textiles, automobiles and other sectors

Taurus expects a wide-ranging impact across several industries:

• Textile: Cotton production has already dropped by 6% in Punjab and 24% in Sindh year-on-year. It is expected to increase cotton imports in FY26.

• Fertilizer: Demand may plunge in flood-hit areas due to reduced farming activity, affecting sales of both urea and DAP.

• Automobiles: Rural car and tractor sales are expected to decline, as weakened farm economics hurt purchasing power and delay government schemes like the Green Tractor Program (Phase-II).

• Construction materials: A slowdown in construction is likely in the short term. While post-flood rebuilding might boost demand, Taurus Securities noted that domestic cement sales did not significantly improve after the 2022 floods.

• Oil Marketing Companies: Disruption to economic activity in affected regions may lead to lower petrol and diesel sales, potentially reducing petroleum imports.

• Banking sector: While deposit levels are expected to remain stable due to low rural exposure, non-performing loans (NPLs) in the agriculture sector could increase due to flood-related damages. As of March 2025, the infection ratio in the agriculture sector stood at 5%, according to Taurus Securities.

Current flood situation

The National Disaster Management Authority (NDMA) has reported that 819 people have died, 8,658 homes have been destroyed, and 6,138 livestock have been lost since mid-June, when heavy rains first triggered the floods. KP has suffered the most severe damage, including widespread destruction of roads, bridges, irrigation systems, and power infrastructure.

Floodwaters, released partly from the Indian side, continue to inundate large areas in Punjab, forcing thousands to evacuate. The Pakistan Meteorological Department expects active monsoon conditions to persist until at least September 10, posing flood risks to downstream districts across eastern Punjab, KP, Gilgit-Baltistan, and Sindh.

Comparison with the 2022 floods

Taurus Securities emphasized that while the current damage appears less severe than in 2022, a full economic assessment is pending.

In 2022, 33 million people were affected, with 1,800 dead, and 2.2 million homes either damaged or destroyed. Over 6.5 million acres of crop land were affected, causing agricultural losses of $3.7 billion, including 88% of cotton production, 80% of Sindh’s rice, and 61% of sugarcane production.

“The economic fallout this time appears lower so far,” Taurus Securities noted. “But we await detailed damage assessments, especially crop loss data, for a clearer picture.”

Key Questions to Watch:

1. Will food inflation keep rising in the coming months?

Likely yes, especially for essential items, unless flood impacts ease quickly.

2. Can Pakistan meet its agricultural and GDP growth targets for FY26?

Unlikely, given the extent of the damage so far.

3. What sectors face the most risk?

Agriculture, textiles, automobiles, fertilizer, and rural banking will likely bear the brunt.

“The full extent of the damage is still unfolding, but the signs already point to a significant disruption to food supply, inflation control, and rural economic activity,” Taurus Securities concluded.