KEY POINTS
- Consumers still face high grocery, education, and healthcare costs
- Inflation fluctuated between 9.74pc in 2020 and 30.77pc in 2023
- Rupee depreciation and devastating floods worsened inflation pressures
- State Bank raised interest rates to 22 per cent to curb inflation
In just two years, Pakistan’s economy has witnessed one of the most dramatic reversals in inflation in its modern history—from a crushing monthly inflation peak of 38 percent in May 2023 to a near-record low of 3.5 percent in May 2025.
But for ordinary citizens, relief remains elusive.
Grocery bills are still steep, school fees have not budged, and healthcare costs continue their upward climb.
This disconnect between official inflation figures and consumers’ experience has become one of the most pressing economic paradoxes of the year — one rooted not in manipulation, but in a statistical phenomenon known as the “base-switch effect.”
Inflation trends overview
Between 2020 and 2025, inflation in Pakistan has seen considerable fluctuations, as indicated by data from the Pakistan Economic Survey and the Pakistan Bureau of Statistics (PBS).
In 2020, the annual average Consumer Price Index (CPI) stood at 9.74 per cent, with a notable monthly peak of approximately 11.1 per cent in January.
The following year, 2021, saw a marginal decline in the average inflation rate to 9.50 per cent, although the CPI still spiked to around 12.3 per cent in April.
In 2022, inflation surged significantly, with the average rate rising to 19.87 per cent and a monthly high of about 24.9 percent recorded in October.
Between 2020 and 2025, inflation in Pakistan has seen considerable fluctuations, as indicated by data from the Pakistan Economic Survey and the Pakistan Bureau of Statistics (PBS).
The inflationary trend intensified in 2023 when Pakistan witnessed its highest-ever average annual inflation of 30.77 per cent.
This was accompanied by a record-breaking monthly peak of nearly 38.0 per cent in May—the highest in the country’s history.
By 2024, inflationary pressures began to ease, with the annual average dropping to 12.63 per cent, although a notable spike of 17.3 per cent was observed in April.
For the ongoing year, 2025, the average inflation rate has further declined to 4.7 per cent, with the latest monthly figure at just 3.5 per cent in May.
The data confirms that May 2023 remains the historical monthly peak, while 2023, as a whole, logged the highest-ever annual average inflation rate of 30.77 per cent.
The base effect trap
On paper, inflation has declined rapidly. Yet, prices have not reversed — they have simply stopped rising as quickly as earlier.
For instance, a kilogramme of flour that jumped from Rs 50 to Rs 120 between 2021 and 2023 still costs Rs 120 in mid-2025.
The base effect means that current inflation is being compared to already high prices from last year, making the rate of change seem smaller, even if prices remain unaffordable.
“Inflation tells you how fast prices are rising — not whether they are high,” says Dr. Kiran Saeed, an economist and faculty member at Quaid-e-Azam University, Islamabad, with a strong focus on economic affairs.
“We are now comparing prices to the 38 per cent surge last year, so mathematically the rate slows, but the pain is cumulative.”
On paper, inflation has declined rapidly. Yet, prices have not reversed — they have simply stopped rising as quickly as earlier. For instance, a kilogramme of flour that jumped from Rs 50 to Rs 120 between 2021 and 2023 still costs Rs 120 in mid-2025.
This base-switch effect is especially potent in the food and energy sectors, where prices skyrocketed in 2022–2023 due to global shocks, currency devaluation, and domestic supply chain disruptions.
Since then, while increases have moderated, wages haven’t kept pace, and essential goods are still two to three times higher than they were in 2020.
Key inflation drivers
The inflation spiral of 2022–2023 was triggered by a perfect storm of factors. Global energy and food prices surged following the outbreak of the Ukraine war, while the Pakistani rupee experienced massive depreciation.
At the same time, devastating floods severely damaged crops across the country, and delays — along with tough conditions — attached to the International Monetary Fund (IMF) bailout further compounded the economic pressure.
The inflation spiral of 2022–2023 was triggered by a perfect storm of factors. Global energy and food prices surged following the outbreak of the Ukraine war, while the Pakistani rupee experienced massive depreciation.
To cool things down, the State Bank of Pakistan hiked the interest rate to a record 22 per cent and fiscal policy tightened under IMF pressure.
These efforts began to pay off in late 2023, with a steep drop in inflation seen from December 2023 onwards.
Reforms still pending
While authorities celebrate the decline, experts warn that the price level remains structurally high.
“Even with single-digit inflation, recovery will feel slow,” said former finance ministry official Mehtab Shaikh. “It’s like slamming the brakes after a car crash — you’re still dealing with the damage.”
Moreover, key structural reforms remain unaddressed. Food distribution systems continue to be vulnerable, and energy prices remain high due to unresolved circular debt issues.
Wage growth has stagnated, offering little relief to households, while inflation in essential sectors like health and education continues to hover above 10 per cent.
Understanding the base effect
Let’s say last year, the price of tomatoes doubled — from Rs 100 to Rs 200. That’s a 100 per cent increase.
This year, the price stays at Rs 200 this year. Therefore, the rate of increase is now zero, thus, inflation is technically zero per cent.
But that does not mean tomatoes are cheap — they are still double the price compared to two years ago.
In 2023, Pakistan saw record inflation — prices of fuel, flour, rice, electricity, and medicines jumped sharply. In 2024 and 2025, those prices stopped rising as fast — or at all.
So when we compare this year’s prices to last year’s already high levels, the increase seems small, even though prices are still hard to afford.
