Disinflation in Pakistan | Dawn News English

Summary

Pakistan's inflation rate plummeted to an extraordinary low of 0.7% in March 2025, a decline from the heights of 38% in mid-2023. This phenomenon, called disinflation, means prices rise at a slower rate but can still feel burdensome. Inflation had been driven by supply chain woes, political turmoil, and global price spikes, particularly in energy and food. Recent efforts like raising interest rates and receiving an IMF bailout contributed to this decline. However, despite these changes, real household incomes and wages haven't kept pace, continuing to pressure Pakistani families.

Highlights

• Inflation dropped dramatically from 38% to 0.7%, that’s a significant swing! 📈➡️📉
• Disinflation is in play—prices rising slowly, not falling, which confuses many 😵.
• Interest rate hikes and a strong rupee helped cool inflation but didn't boost household budgets 💪💰.
• Even with inflation slowing, high prices still weigh heavily on Pakistani families, showing gaps in purchasing power 💔.
• The IMF’s involvement means tighter belts for households with higher taxes and fewer subsidies 🍽️.
• Pakistan’s economic path mirrors global trends but faces unique structural challenges 🛠️.

Key Takeaways

• Disinflation is when inflation rates drop, but it doesn't mean prices are falling, just increasing slower than before 😕.
• Inflation in Pakistan once soared to 38% but has now decreased to 0.7% thanks to factors like increased interest rates and an IMF bailout 📉.
• Despite slowing inflation, many Pakistanis feel the pinch as wages and purchasing power haven't caught up 😩.
• The IMF's fiscal measures have stabilized the economy but at a cost, with higher taxes and less spending affecting vulnerable households 💸.
• Global and internal factors still pose challenges, emphasizing the need for sustainable, long-term strategies in Pakistan's economy ⚙️.

Overview

Imagine a world where inflation drops like a hot potato—from a towering 38% in mid-2023 to just 0.7% by March 2025. Welcome to Pakistan, where the inflation rate is playing tricks on everyone's wallet. Despite this deceptive drop, the concept of disinflation means prices are still inching upwards, just not as fast as before. It's like being on a diet—your expenses aren’t ballooning, but they’re not slimming down fast enough to fit into those old jeans either!

Rewind to 2020, inflation stood at a somewhat manageable 8.6%, but fast forward to a whirlwind mid-2023, and prices skyrocketed thanks to global commodity price hikes and political drama at home. Electricity, food, and fuel—those essentials that seem to burn a hole in everyone's pocket—played a huge part in inflating those numbers. Then, the rescue squad came in: higher interest rates, IMF bailout, and the strengthening rupee all raced to stabilize the economy, helping to ease the headline numbers.

But wait, why does everything still feel expensive? While economists might cheer, everyday folks face a different reality. Wages haven’t sprinted alongside inflation rates, and many Pakistanis are squeezing tighter into their budgets. The government’s fiscal policies, while stabilizing on paper, mean fewer subsidies and support for those struggling. Going forward, Pakistan needs a makeover—bring on the reforms to truly put 'affordable' back into everyday living.

Chapters

• 00:00 - 00:30: Introduction to Disinflation The chapter "Introduction to Disinflation" discusses Pakistan's inflation rate dropping to a historic low of 0.7% year-on-year in March 2025. Despite this decrease, the concept of disinflation means prices are still rising, just at a slower rate. This can make items feel more expensive for everyday consumers. The chapter also distinguishes disinflation from deflation, emphasizing that disinflation does not mean prices are falling, only that their rate of increase has slowed. The situation does not necessarily provide relief to most Pakistanis, reflecting on the difference since 2020 when inflation was at 8.6%.
• 00:30 - 01:00: Inflation Spike from 2020 to 2023 The chapter titled 'Inflation Spike from 2020 to 2023' discusses the dramatic increase in inflation to a record high of 38% by 2023. This spike was fueled by several factors including supply chain disruptions, political instability, external debt pressures, and increasing global commodity prices. Key contributors to consumer price surges, particularly in June 2022, were electricity, food, and fuel, which together accounted for 81% of the inflation that month. Additionally, the chapter notes the depreciation of the rupee from 226 to approximately 282 per US dollar by the end of 2023.
• 01:00 - 01:30: Causes of Inflation Decline The chapter titled 'Causes of Inflation Decline' discusses the factors contributing to a significant drop in inflation rates. Initially at 38%, the rate declined to 0.7% due to a combination of domestic and global influences. Domestically, the State Bank of Pakistan increased interest rates to 22% to reduce demand and slow money supply growth. Additionally, an IMF bailout played a crucial role in stabilizing the exchange rate. Globally, the drop in oil prices and an improvement in wheat supplies contributed to this decline. Between September 2023 and March 2024, Pakistan imported 3.5 million tons of wheat.
• 01:30 - 02:00: Impact on Households and Economy While inflation is slowing down with lower food prices, the overall price levels remain high, impacting the real purchasing power of households, which hasn't yet recovered. Despite easing inflation, wages are not increasing at a pace that matches. The adverse effects of inflation have predominantly affected low and middle-income households, and the salaried class is under additional pressure due to increased taxation, paying over 331 billion rupees last year without noticeable improvements in public services or social protection. Consequently, even with inflation showing signs of easing, disposable income remains constrained.
• 02:00 - 02:30: Global Comparisons and Internal Challenges The chapter 'Global Comparisons and Internal Challenges' discusses the effects of the IMF program launched in Pakistan in 2023, which focuses on fiscal consolidation through higher taxes, fewer subsidies, and reduced public spending. While these measures have theoretically stabilized Pakistan's economy, they have also exacerbated conditions for vulnerable populations. The chapter draws parallels with economic challenges in Turkey, where inflation peaked at 75% in 2024 and remains above 40%, due to loose fiscal policies, wage increases, and delayed interest rate actions. Similarly, in Egypt, a significant 40% currency depreciation in 2024 has compounded economic issues. The chapter highlights the shared economic struggles these countries face, emphasizing the tension between fiscal stability and the social impact on citizens.
• 02:30 - 03:00: Need for Long-term Strategies The chapter titled 'Need for Long-term Strategies' discusses the pressing economic issues in Pakistan, highlighting how essential items like food and fuel dominate household budgeting, severely impacting the already poverty-stricken populace, with 40% of citizens affected. Despite global economic influences, the core problems are identified as internal, stemming from structural weaknesses and policy delays. Inflation remains a significant issue, driving headlines without real improvement in wages, employment, or public services. The chapter strongly suggests that Pakistan requires not just short-term interventions but strategic long-term solutions to alleviate these persistent economic challenges.
• 03:00 - 03:30: Conclusion and Call to Action The chapter delves into strategies aimed at enhancing domestic production, creating sustainable employment opportunities, reforming the tax system, investing in social safety nets, and tackling climate risks that jeopardize agriculture and industry. Despite the decline in inflation rates, persistent issues surrounding the cost of living are highlighted, emphasizing that without these reforms, the aspiration for low inflation remains unfulfilled. The summary points to Ysef Nuzar's weekly article as a resource for understanding the intricacies of Pakistan's economy and policy landscape, suggesting a subscription to Dawn News English for more detailed economic explainer videos.

Disinflation in Pakistan | Dawn News English Transcription

• 00:00 - 00:30 pakistan's inflation rate has dropped to its lowest level in decades just 0.7% year-on-year as of March 2025 but if prices are rising slower why does everything still feel expensive this phenomenon is called disinflation a reduction in the rate of inflation not to be confused with deflation where prices actually fall disinflation simply means that prices are rising more slowly than before on paper that sounds like good news but for most Pakistanis it's not translating into relief let's rewind in 2020 inflation stood at 8.6% by mid
• 00:30 - 01:00 2023 it had soared to 38% the highest on record this spike was driven by supply chain disruptions political instability external debt pressures and soaring global commodity prices electricity food and fuel costs played a major role in June 2022 for example consumer prices jumped 6.3% in just 1 month 81% of which came from those three sectors alone by the end of 2023 the rupee had dropped from 226 to around 282 per US dollar
• 01:00 - 01:30 making imports particularly energy and food even more expensive so how did we get from 38% to 0.7% analysts point to a mix of domestic and global factors the State Bank of Pakistan or SP raised interest rates to 22% part of its efforts to cool demand money supply growth also slowed at the same time an IMF bailout helped stabilize the exchange rate globally oil prices fell and wheat supplies improved between September 2023 and March 2024 Pakistan imported 3.5 million tons of wheat at
• 01:30 - 02:00 lower prices easing food inflation but while inflation may be slowing prices remain high and real household purchasing power has not recovered wages haven't kept pace and the burden of inflation has already done its damage especially for those in low and middle income brackets the salaried class has also faced increasing pressure from taxation workers paid over 331 billion rupees in taxes last year with little sign of improved public services or social protection in return so even as inflation slows disposable income
• 02:00 - 02:30 remains under strain the IMF program launched in 2023 has focused on fiscal consolidation higher taxes fewer subsidies and reduced public spending while this has helped stabilize the economy on paper it has also made life harder for vulnerable households pakistan is not alone in facing these challenges in Turkey inflation peaked at 75% in 2024 and still remains above 40% today loose fiscal policy wage hikes and delayed interest rate action have kept inflation persistently high in Egypt a 40% currency depreciation in 2024 drove
• 02:30 - 03:00 up the cost of food and fuel essentials that dominate household budgets so while global trends matter Pakistan's issues are largely internal from structural weaknesses to policy delays poverty now affects 40% of the population and essentials like food still take up a large share of household income this inflation makes for great headlines but it doesn't mean things are actually getting better without improvements in wages employment and public services the impact of high inflation lingers going forward pakistan needs more than temporary fixes it needs long-term
• 03:00 - 03:30 strategies focused on boosting domestic production creating sustainable jobs reforming the tax system investing in social safety nets and addressing climate related risks that threaten agriculture and industry until these changes take root the promise of low inflation will remain just that a promise because while the rate of price rises may be falling the cost of living prices is far from over and that's the gist of Ysef Nuzar's business and finance weekly article subscribe to Dawn News English to see more explainers on Pakistan's economy and policy landscape