Pakistan October inflation forecasts differ over food, fuel costs

Pakistan's Finance Ministry expects inflation to range between 9.5% and 10.5% in October 2026, while Topline Securities has projected a lower rate of 9% to 9.5%, reflecting differing assessments of food and energy price pressures.

In its latest Monthly Economic Update and Outlook, the Finance Ministry said inflation remained sensitive to international energy prices, food supplies and base effects, which influence annual price comparisons.

Topline Securities' October forecast compares with inflation of 10.26% in September and 6.25% in October last year.

The brokerage expects consumer prices to rise 0.87% from September, primarily driven by higher transport and food costs.

The Finance Ministry said annual consumer price inflation eased to 10.3% in September from 11.1% in August, although it remained significantly higher than the 5.8% recorded a year earlier.

Average inflation during July-September, the first quarter of fiscal year 2027, stood at 10.2%, compared with 4.3% in the corresponding period last year.

Transport prices increased 27.4% from a year earlier in September, while housing, water, electricity, gas and fuel costs rose 12.4%. Perishable and non-perishable food prices increased 11.8% and 7.6%, respectively.

What is driving Pakistan's October inflation?

Topline Securities expects transport prices to increase 1.63% from September, primarily because of a 2.9% rise in fuel prices. Petrol prices increased approximately 3.5% during the period, while high-speed diesel prices declined around 1.3%, according to the brokerage's estimates.

Food inflation is projected to rise 1.05% during October, reflecting higher prices of chicken, pulses, wheat and wheat flour.

The brokerage's price assessment indicates increases of 17% for chicken, 11% for pulse gram, 9% for wheat and 10% for wheat flour.

These increases were partly offset by declines of 32% in tomato prices, 10% in potatoes and 9% in fresh vegetables.

The housing, water and electricity category is expected to increase 0.80% from September despite a projected 2.18% decline in electricity prices.

The electricity adjustment reflects changes in fuel charges and tariff adjustments. The fuel charges adjustment declined to PKR 1.1086 per kilowatt-hour in October from PKR 2.0581 in September.

Meanwhile, the quarterly tariff adjustment stood at a positive PKR 0.5194 per kilowatt-hour, compared with a negative PKR 1.9857 applicable during June-August 2026.

What does the inflation outlook mean for interest rates?

Based on its October inflation forecast and the State Bank of Pakistan's (SBP) policy rate of 12%, Topline Securities estimates that the real interest rate, measured as the policy rate minus inflation, will range between 250 and 300 basis points.

The brokerage said this was broadly consistent with Pakistan's historical average of 200 to 300 basis points.

It also warned that average inflation could exceed 9% in FY27 if international oil prices remained around USD 100 to USD 110 per barrel, compared with its earlier forecast of 8.5% to 9%.

The Finance Ministry said continued improvements in tax administration, energy efficiency and state-owned enterprise reforms would support sustainable economic growth while containing pressure on the external account.

It added that improved crop supplies could help moderate food inflation.

Meanwhile, Pakistan's Sensitive Price Indicator (SPI), which tracks weekly changes in essential commodity prices, increased 0.65% in the week ending October 22. Prices of 19 items rose, 12 declined and 20 remained unchanged.