Pakistan's core inflation at 8.4% in September, above historical average

Pakistan's core inflation stood at 8.4% in September 2026, above its historical average of 8.1%, as persistent price pressures in services complicated the State Bank of Pakistan's (SBP) efforts to bring inflation within its target range.

Core services inflation reached 8.9%, compared with its historical average of 8.1%, while core goods inflation stood at 8.5%, below its historical average of 12.5%, the central bank said Monday.

The figures indicate that underlying inflation remains elevated, particularly in services, even as goods inflation stays below its longer-term average.

Why is core inflation a concern for the State Bank?

Core inflation is commonly measured by excluding volatile items such as food and energy to identify underlying price pressures. Persistent inflation in services suggests that price increases are not limited to immediate fluctuations in fuel or food costs, complicating efforts to bring overall inflation within the SBP's medium-term target range of 5% to 7%.

The Monetary Policy Committee (MPC) raised its benchmark interest rate by 50 basis points to 12% on October 26, citing a worsening inflation outlook amid the intensifying Middle East conflict and persistently high global energy prices.

The increase, supported by nine of the committee's 10 members, takes effect on October 27, 2026.

The MPC said the domestic impact of higher energy prices had so far remained contained because of proactive monetary policy adjustments and continued fiscal discipline. However, the inflation outlook had deteriorated since its previous assessment.

The committee said the increase was intended to keep inflation expectations under control, limit the wider effects of rising production costs and return inflation to its target range.

What is the outlook for remittances and foreign exchange reserves?

The central bank raised its forecast for workers' remittances to at least USD 45 billion in fiscal 2026–27, up from its previous projection of USD 44 billion.

SBP Governor Jameel Ahmad said a remittance lottery scheme offering quarterly prizes worth PKR 4 billion had yet to produce a measurable impact on inflows. However, the bank expects the scheme to support remittances over time, based on similar initiatives in other countries.

The SBP's foreign exchange reserves stood at approximately USD 21.5 billion, equivalent to about three months of imports.

The governor projected reserves would rise to USD 23 billion by the end of December 2026 and USD 25 billion by the end of June 2027, with the central bank aiming to exceed the latter target.

The projections account for expected inflows from the remaining Panda bond issuance, multilateral lenders and the International Monetary Fund (IMF), after debt servicing.

What do the latest fiscal and credit figures show?

The Federal Board of Revenue's (FBR) tax collection increased by 7% from a year earlier in the first quarter of fiscal 2026–27, exceeding its target by PKR 33 billion, according to the central bank.

A substantial profit transfer from the SBP and contained government expenditure were expected to keep both the overall and primary fiscal balances in surplus during the quarter.

Broad money growth, which measures the expansion of currency in circulation and money held in various bank deposits, accelerated to 12.7% from a year earlier as of October 9, compared with 11.4% on August 28.

The SBP attributed the increase primarily to higher net foreign assets.

Meanwhile, private-sector credit grew 14.1% from a year earlier, supported by borrowing for day-to-day business operations, long-term investment and consumer financing.