In February 2025, Pakistan faces a major challenge in tackling inflation but one that is not out of control at present. Consumer Price Index (CPI) is estimated to be in the range of 2–3 percent for February which is following a significant downtick from the record high of 38 percent in May 2023. A good part of the downward trend is explained by a favorable base effect and ongoing government and the State Bank of Pakistan (SBP) policy interventions.

Pakistan’s inflation rate has significantly dropped from 38% in May 2023 to an estimated 2-3% in February 2025.

Effectiveness of adjusting monetary policy is confirmed by recent inflation figures. The key policy rate has been reduced 100 basis points in January 2025 to 12%, after a series of cuts since June 2024 and the SBP has been proactive in controlling inflation. The Finance Division in its monthly economic outlook also noted that which this easing of monetary policy has helped stabilize the financial environment and boosted business confidence.

While these are positive trends, however, there is a risk of rising inflation to 3-4% by March 2025. Partly, this projected rise is because of seasonal factors such as the month of Ramadan, which usually has higher food prices. The financial situation of the country may also be affected by fluctuations in global commodity prices, especially in oil. An example is that even a variation of current oil price of $75 per barrel may result in different inflation forecasts, as pointed out by Topline Securities.

Balancing economic growth with security concerns and international cooperation is crucial for Pakistan’s long-term stability.

The current inflation situation also shows signs of economic problems in the broader context. Pakistan’s GDP growth has been weak, standing at 0.9% in Q1 FY2025, that is lower than 2.3% in the same quarter of FY2024. Export and remittances have been more resilient, growing by 7.6 percent and 31.7 percent on a year on year basis during July – January FY2025, but the economy continues to be vulnerable to external shocks.

Also, Pakistan’s economy needs to be fined tuned to promote growth by lessening the consumption dependence on investment. Uraan Pakistan aims to increase exports and cut down on trade deficits, but its implementation needs to be continuous.

As related to security, economic instability can also pose security challenges because it could provide an open ground for militant groups to domesticate. This highlights how terrorism becomes increasingly rampant in Pakistan because necessary comprehensive reforms are still not undertaken to resolve both economic instability and security threats. Military support remains extremely significant, and can only be guaranteed with the help of international cooperation, particularly with the U.S., whereas a reduction in aid could lead to the destabilizing of the internal security.

SBP’s monetary policies, including interest rate cuts, have stabilized inflation and improved business confidence.

The solution to such foreign affairs, however, is not so simple, as the Afghan refugee crisis further complicates the resources, and adds another layer to dealing with the regional security issues. Pakistan’s capacity to handle these challenges will in turn depend on its skill in striking a suitable balance between economic and security priorities.

While now controlled, Pakistan’s inflation still confronts an economic and security conundrum. Navigating these challenges require sustainable reforms, good international cooperation, and maintaining an insistence on the internal stability. The current disinflation trend gives further policy space, including, theoretically, in the form of possible interest rate cuts, to help sustain economic recovery, JS Global said. But with the potential of pushing inflationary pressures, Pakistan needs to be vigilant and economic stability should translate into a better security and prosperity for Pakistan’s citizens.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.