KARACHI:

Pakistan’s headline inflation is projected to rise to 12.2% year-on-year in May 2026 as mounting fuel and food prices outweigh relief from lower electricity charges, according to Optimus Capital Management.

The brokerage expects the National Consumer Price Index (NCPI) to increase by about 1% month-on-month (MoM), while core NCPI is projected at 8.4% YoY, indicating persistent underlying pressures.

The transport index is expected to surge nearly 6.9% MoM, primarily due to an anticipated 9.5% increase in domestic fuel prices. Although international oil prices have declined monthly, fuel prices in Pakistan remain elevated because of higher premiums and Inland Freight Equalisation Margin (IFEM) adjustments. As a result, energy inflation is expected to reach about 39% YoY.

Optimus noted the housing index may provide partial relief, projecting a 1.2% monthly decline mainly due to lower electricity tariffs. However, this is unlikely to offset the broader inflationary impact from transport and food categories.

The report, authored by Optimus analyst Yasin Iqbal Kodvavi, also highlighted that the cushion previously provided by easing food inflation is fading. Food inflation is projected to rise by about 1.5% MoM and nearly 9% YoY, driven largely by higher wheat and wheat flour prices, both expected to increase by nearly 7% monthly. Rising transportation costs, higher fertiliser prices and fluctuating procurement policies are contributing to the increase. Fresh milk and milk products are also expected to rise by about 2.7% MoM.

Optimus warned that persistent geopolitical uncertainty and elevated energy prices remain major risks. Higher fuel costs will continue feeding into broader sectors, while adverse weather, rising logistics costs and normalising trade flows could further accelerate food inflation.

The report added that recent auction yields by the State Bank of Pakistan (SBP) reflect market expectations of sustained inflationary pressures and potential monetary tightening. Given the upcoming federal budget, the ongoing IMF programme and broader macroeconomic challenges, analysts expect the SBP to maintain a cautious stance and potentially hike interest rates by an additional 50?100 basis points in the coming months.

“The main reasons are higher fuel prices, up almost 9.5% MoM, and rising food costs, up almost 1.5% MoM. Even though global oil prices have come down slightly compared with last month, prices in Pakistan remain high because of higher premiums and transportation costs,” Kodvavi told The Express Tribune.

“Wheat and wheat flour prices are likely to increase by around 7% over the month, while milk and milk products may also become more expensive. These increases are linked to higher transportation costs, expensive fertiliser and changing procurement conditions.”

Looking ahead, the inflation outlook remains uncertain. Fuel prices could stay elevated amid ongoing global tensions, while food prices may continue to rise due to higher logistics and fertiliser costs, along with weather?related conditions, Kodvavi anticipated.