Govt estimates inflation to rise to 7.5% in FY26
Projected increase notably higher than outgoing fiscal year's 5% inflation rate
May 31, 2025
- Planning ministry cautions external sector to come under strain.
- Debt repayments to widen current account deficit in next budget.
- Inflation expected to persist in next fiscal year from Jul 2025 to Jun 2026.
The government has projected a resurgence in inflationary trends, forecasting an average CPI-based inflation rate of up to 7.5% for the 2025–26 budget, a notable increase from the 5% recorded in the current fiscal year, The News reported.
Meanwhile, the Ministry of Planning cautioned that the external sector could come under strain, as the relaxation of import restrictions and upcoming debt repayments are expected to widen the current account deficit in the upcoming budget.
The Annual Plan Coordination Committee (APCC), scheduled to meet on June 2, 2025, is all set to consider recommending the overall macroeconomic framework for the upcoming budget, including envisaging GDP growth rate of 4.2% for the next budget against 2.68% for the outgoing financial year.
These macroeconomic projections show that the stabilisation mode would continue in the coming fiscal year under the tight noose of the IMF.
According to the government’s prescriptions, public investment is projected to increase from 2.9% to 3.2%. Similarly, private investment is also projected to rise from 9.1% of GDP to 9.8%.
“The fiscal and monetary policies will aim for consolidation and stability, with an expected inflation of 7.5% due to the low base effect and risk of ongoing trade tensions and domestic tariff rationalisation measures.
The external sector may face pressure, as easing import controls and debt repayments are likely to widen the current account deficit. Yet, strong remittances, export recovery, and anticipated external financing are expected to cushion these pressures and support external sustainability,” the government concedes.
The impact of the base effect for keeping inflation on the lower side is going to vanish from the upcoming fiscal year, elevating the CPI-based average inflation picking up and standing at 7.5% in 2025–26.
This indicates that the inflation is going to persist in the next fiscal year from July 2025 to June 2026 but within the single digit. On a monthly basis, it might be double digit in some instances.
