Finance Division expects inflation to remain in 5-6% range in January

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Inflation is expected to remain between 5% and 6% in January, the Finance Division reported on Tuesday, pointing to stability and positive trends in major macroeconomic indicators.

In its Economic Update and Outlook report for the first month of 2026, the Finance Division said that the country's economy completed the first half of the fiscal year 2026 (FY2026) with continued macroeconomic stability, reflected in contained inflation, Large-Scale Manufacturing (LSM) growth, and strengthened foreign exchange reserves.

The CPI inflation recorded at 5.6% on a year-on-year basis in December 2025 as compared to 6.1% in the previous month and 4.1% in December 2024.

On average, inflation during July-December FY2026 stood at 5.2% as against 7.2% during the same period last year.

Remittances remained robust, supporting the external account, while the Pakistan Stock Exchange (PSX) ranked among the world's top-performing markets.

The report noted that the agriculture sector posted a growth of 2.9% in the first quarter FY2026, showing a significant improvement from 1% during the same period last year.

Major crops (excluding wheat being rabi crop) recorded a contraction of 0.7% as compared to a contraction of 13.1% during the first quarter of last year, mainly due to reduced cotton production.

LSM registered a growth of 6% with the QIM index reaching its highest during July-November FY2026 since FY2016, while during the period, 16 sectors recorded positive growth.

In November 2025, LSM grew by 10.4% year-on-year and by 0.2% on a month-on-month basis.

The government has achieved a fiscal surplus during July-November FY2026, with gross federal revenue receipts recording a growth of 7.8% during the period.

The increase can be attributed to growth in the Federal Board of Revenue's (FBR) collection and non-tax revenue by 10.2% and 4.8%, respectively.

Total expenditure declined by 6.2% due to 6.4% reduction in current expenditure as mark-up payments declined by 21.3%. Development expenditure, on the other hand, posted an increase of 1.5%.

Meanwhile, the current account posted a deficit of $1.2 billion during July-December FY2026, compared to a surplus of $0.96 billion recorded last year.

Goods and services export recorded at $20.3 billion compared to $20.4 billion last year, in which goods export stood at $15.5 billion.

Services export were primarily driven by IT services that increased by 19.8% to $2.2 billion. Goods and services imports recorded at $37.8 billion compared to $33.5 billion last year, including goods imports of $31.3 billion. The trade deficit of goods and services increased to $17.6 billion from $13.1 billion last year.

Remittances were up 10.6% to $19.7 billion, led by inflows from Saudi Arabia (23.9%) and the UAE (20.7%). Net FDI inflows declined, recording at $808.1 million.

During July-December FY2026, money supply showed a growth of 3.7% as compared to a contraction of 0.7% during the corresponding period of last year.

Net Foreign Assets of the banking system increased by Rs107.9 billion as compared to an increase of Rs667.3 billion last year, while Net Domestic Assets of the banking sector increased by Rs1.4 trillion as compared to a decline of Rs934.7 billion last year.

Under the borrowing for budgetary support, the government retired Rs347 billion as compared to the retirement of Rs2.21 trillion last year.

The Finance Division said that Pakistan's economy was well-positioned to sustain its growth momentum in FY2026, supported by the encouraging performance of LSM and other high-frequency indicators.

"This positive trajectory reflects the impact of prudent policies, ongoing structural reforms, and easing of monetary conditions due to subsiding inflationary pressures," it added.

On the external front, the current account is projected to remain in a deficit; however, robust remittance inflows and steady performance in IT and services exports are likely to cushion external pressures.

The improved fiscal management is also expected to continue supporting the macroeconomic stability, the report stated.