akistan’s inflationary challenge extends beyond isolated economic shocks. It stems from numerous incremental pressures that together sustain elevated price levels, drive up interest rates, disrupt the nation’s growth trajectory and confine approximately half the population to poverty.

The cyclical nature of inflation is a major challenge for the current administration’s celebrated macroeconomic stability. Elevated fuel expenses are a major contributor to overall inflation. This threatens economic growth and can exacerbate poverty. Unless the government acts decisively, particularly on the energy side, the inflationary cycle will perpetuate itself, initiating another round of price pressures and monetary tightening that could lead to slow economic growth, job losses and a higher rate of poverty. Extensive energy-related disruptions have already delivered a thousand cuts to cost-reduction initiatives, bleeding the economy and causing substantial strain.

According to the September 2026 assessment of the Asian Development Bank, Pakistan stands out as an inflation hotspot in South Asia, well above the average Asian inflation rate.

The ADB report says Pakistan is on unprecedented ascending inflation trajectory, showing both extreme volatility and persistent stickiness. Inflation stood at 7.2 percent in July and 7.1 percent in September this year, well above South Asia’s average of 5.7 and 5.5 percent, respectively. India is forecast at 5.2 percent and 5.0 percent; Nepal at 3.2 percent and 3.1 percent; and Maldives at 5.0 percent and 2.2 percent for the same period. Only Bangladesh, at 9.0 percent and 8.7 percent, respectively, has higher inflation than Pakistan over the period.

As per ADB data, following the Ukraine-Russia war, price hikes became a common phenomenon from early 2023 across the world. Pakistan was among the worst hit. The country recorded highest inflation in the region in 2023 at 29.2 percent and again, in 2024, at 23.4 percent, at a time when South Asia’s average was 7.9 percent and 6.4 percent, respectively. While Sri Lanka was also high in 2023 at 17.4 percent, it cooled sharply to 1.2 percent in 2024 and - 0.5 percent in 2025. Pakistan’s drop to 4.5 percent in 2025 was a dramatic but lesser achievement. It also proved to be short-lived.

The outlook for 2027 is also concerning.

Pakistan’s inflation is projected to rise to 8.3 percent for September while the South Asian region average falls to 4.8 percent. India’s inflation is seen stable at 4.0 percent, Bhutan’s at 4.5 percent, Nepal’s at 5.0 percent and Sri Lanka’s at 5.2 percent. By 2027, Pakistan’s inflation could once again rise to nearly double the South Asian average.

Against the broader Asian average, Pakistan’s divergence is even sharper. Asia and the Pacific averaged 5.3 percent in 2023, 4.8 percent in 2024 and 2.9 percent in 2025, while Pakistan was at 29.2 percent, 23.4 percent and 4.5 percent, respectively. For 2026, the region is projected at 4.0 percent and 3.9 percent, nearly half of Pakistan’s 7.2 percent and 7.1 percent. For 2027, the gap widens further: Asia and the Pacific is forecast at just 3.2 percent and 3.3 percent, against Pakistan’s 8.3 percent.

Pakistan’s inflation is estimated to be 2.5 times the Asian average in 2027, confirming that its price pressures are homegrown and not driven by regional or global trends.

The primary catalyst for this inflationary surge is petroleum products. An increase in energy costs translates into more elevated prices across the board due to underlying structural constraints. Pakistan calculates inflation using a basket of goods, virtually every item in that basket depends on diesel and petrol for movement, relying almost entirely on vehicular transport across a relatively more expensive road infrastructure. Whether it involves wheat distribution, produce shipment or manufactured goods transportation, fuel represents a concealed but relatively major component embedded in every final price.

This reliance reflects an even worse structural limitation.

Pakistan imports most of its petroleum products and maintains insufficient refining capacity, particularly for diesel. Add to that, unlike some other parts of the world, the economy depends on motorways and road-based trucking. There exists a near road transport monopoly. A group of major transporters monopolise logistics. They exercise significant control over freight rates in the absence of viable alternatives.

Currently, there is no comprehensive policy or strategic framework for affordable electric vehicles in the logistics and transportation sector. Almost half of trains worldwide are run by electricity. In our neighbourhood, the Indian railway has achieved rapid transformation, with a lion’s share of its broad-gauge tracks electrified by early 2026.

The lack of initiative has prevented commuters and businesses from accessing alternatives that could foster healthy competition in high-quality travel and goods movement.

Pakistan is also heavily dependent on its fuel imports and lacks large enough storage capacity to absorb price shocks.

The LPG sector, too, is in a crisis. Poor households grown dependent on LPG are paying twice the notified price. LPG is also being used as auto fuel without adequate regard to safety standards. Quality is another challenge. Poor quality fuels lower efficiency. LPG supply is often contaminated and most LPG cylinders are substandard.

Digitisation is missing in the downstream petroleum sector. There is no real-time tracking of what is sold where. This allows black marketing.

Electricity shortages and elevated tariffs, too, contribute to inflationary pressures through multiple mechanisms. Electricity constitutes a component of the consumer price index alongside other energy sources. When the NEPRA raises base tariffs or implements fuel adjustment charges, it directly elevates the CPI.

Indirect cost-push mechanisms make goods more expensive across the economy. Supply disruptions manifest as load-shedding, outages and equipment failures, forcing factories to halt operations, curtail production or rely on diesel generators. Diesel power currently costs 2-3 times the grid electricity.

Circular debt is destabilising the national economy and generating monetary inflation. Despite high tariffs, cost recovery remains incomplete and theft-related losses accumulate into trillions of rupees in circular debt. The government addresses this through borrowing or monetary expansion to provide subsidies. Such borrowing increases money supply and fuels future inflation. Furthermore, the government subsequently raises taxes and levies to address the deficit, creating additional inflationary pressure.

Supply shortages reduce the availability of goods, while elevated tariffs increase production costs. Both these factors diminish the purchasing power, hereby creating classic stagflationary conditions. This explains why Pakistan’s core inflation remains persistent even when global oil prices decline.

Solar energy offers a viable way to cut electricity costs. It should be promoted both as part of the national grid and as an off-grid solution. Expanding access to cheap solar electricity would, directly or indirectly, help ease inflationary pressure.

Energy sector mismanagement is a major driver of inflation in Pakistan. Borrowing to cover energy sector losses further fuels monetary expansion, creating a vicious cycle.

The writer is a senior staff reporter at The News International. He has over 25 years of experience in mainstream print and electronic media. He can be reached at [email protected].