Pakistan's CPI Jumps to 11.1% in August Amid Middle East Crisis
The Pakistan Bureau of Statistics reported an August CPI of 11.1%, up 1.9 points from July, driven by higher fuel, fertilizer and helium costs linked to the Middle East conflict.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Negative · Do not buy
Rising inflation pressures consumer demand and cost structures, leading to a bearish stance on most PSX sectors.
Sectors & Direction
Desk read
Desk call: Do not buy · Negatively affected
- BanksNegatively affected
- CementNegatively affected
- SteelNegatively affected
- TextileNegatively affected
- AutomobileNegatively affected
- PowerNegatively affected
Companies
Mentions in This Briefing
Sectors: Banks, Cement, Steel, Textile, Automobile, Power — Negative · Do not buy. PSX tickers: FFC, EFERT, ENGRO. Rising inflation pressures consumer demand and cost structures, leading to a bearish stance on most PSX sectors.
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Open on Business Recorder## August CPI Surges to 11.1%
The Pakistan Bureau of Statistics (PBS) released the Consumer Price Index (CPI) for August, recording an 11.1% year‑on‑year increase. This is 1.9 percentage points higher than the 9.2% estimate for July and matches the June level. Compared with the same period last year, CPI has risen sharply – 3.56% in the first two months of FY2025 versus 10.17% in FY2026.
## Root Causes: Middle East Tensions and Supply Constraints
The editorial attributes the spike primarily to the ongoing Middle East crisis, which has tightened global supplies of petroleum products, diesel, aviation fuel, fertilizers and helium. Although some imports are being flown to Gulf markets, air freight raises costs considerably compared with sea shipments.
## Divergence Between CPI and Wholesale Price Index (WPI)
PBS data shows the Wholesale Price Index (WPI) fell to –0.74% in July‑August 2025, indicating deflation at the wholesale level, while CPI remained positive. Four factors explain the gap: 1. Service sector inclusion – items such as medical, education fees are part of CPI but excluded from WPI. 2. Middlemen dynamics – intermediaries in agriculture and other sectors secure higher prices for seasonal crops, inflating retail rates. 3. Regulated price adjustments – petroleum and related products see immediate price hikes, while downward movements are resisted. 4. Focus of WPI – concentrates on industrial inputs that have risen since 2019 under IMF‑linked reforms, whereas CPI reflects broader consumer prices.
## Informal Economy and Taxation Challenges
Nearly half of Pakistan’s economy operates informally, with prices often set according to a buyer’s perceived ability to pay. Efforts by successive governments to broaden the tax net via the Federal Board of Revenue (FBR) face resistance from informal traders. Concerns have also been raised about the newly launched Tax Asaan app, which, despite its intent to simplify filing, may be vulnerable to misuse. Analysts suggest structural tax reforms and reduced reliance on indirect taxes.
## Fiscal Implications
Budget documents project indirect taxes to account for 50% of revenue, but actual reliance may be higher because withholding taxes on sales, technically indirect, represent about 70% of direct tax collections. The petroleum levy alone is budgeted at roughly PKR 1.6 trillion for the current year. With the World Bank estimating that 42.4% of Pakistan’s population lives below the poverty line, easing inflationary pressure on low‑ and middle‑income households is a pressing policy priority.
## Market Outlook
Higher inflation typically erodes consumer purchasing power, squeezes margins for non‑essential manufacturers, and raises cost‑of‑funding pressures for banks. The persistent supply bottlenecks and fiscal strain suggest a continued bearish bias for most listed sectors on the PSX.