August Economic Outlook: Inflation Expected to Remain Elevated at 10‑11%
Pakistan’s inflation is projected to stay at 10‑11% in August 2026, driven by global commodity and energy price pressures, while falling FDI, a sharp drop in private‑sector credit and looming flood risks threaten growth.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Negative · Do not buy
High inflation, falling FDI and credit contraction negatively affect Banks, Economy and Markets – Don't buy.
Sectors & Direction
Desk read
Desk call: Do not buy · Negatively affected
- BanksNegatively affected
- EconomyNegatively affected
- MarketsNegatively affected
Companies
Companies Mentioned
- ISL· Negatively affected · Do not buy
Mentions in This Briefing
Sectors: Banks, Economy, Markets — Negative · Do not buy. PSX tickers: ISL. High inflation, falling FDI and credit contraction negatively affect Banks, Economy and Markets – Don't buy.
Full Story
Open on Business Recorder## Inflation Outlook
The State Bank of Pakistan (SBP) forecasts that headline inflation will hover between 10 and 11 percent in August 2026. The rise is attributed to persistent pressure from global commodity markets and higher energy prices, which continue to feed domestic price dynamics.
## Deteriorating Investment Climate
Foreign direct investment (FDI) inflows have been on a downward trajectory, reflecting investor caution amid macro‑economic volatility. The decline in FDI reduces foreign exchange earnings and limits the capital available for large‑scale projects.
## Credit Contraction in the Private Sector
Private‑sector credit growth has entered a deep contraction, signalling tighter financing conditions for businesses. Banks report a slowdown in loan disbursements, which could hamper expansion plans across industries.
## Climate‑Related Risks
Heavy rains and flood threats loom over the agricultural sector, potentially curbing crop yields and adding upward pressure on food prices. The environmental risk also raises concerns for the external account, as agricultural exports may be affected.
## Implications for the Economy
The combination of high inflation, reduced FDI, shrinking private‑sector credit, and climate vulnerabilities creates a challenging environment for economic growth. Policymakers are expected to balance monetary tightening with measures to support vulnerable sectors.
## Market Outlook
Investors should monitor the SBP’s policy stance, any fiscal adjustments, and the evolution of flood‑related damages, as these factors will shape risk sentiment on the Pakistan Stock Exchange (PSX).