Pakistan is facing economic challenges as inflation surged to 11.7% in May, raising concerns about weak growth and financial pressure, according to a report by Morocco-based media house Assahifa. The country’s annual inflation increased from 10.9% in April to 11.7% in May 2026, with economists warning of a potential cycle of rising prices and economic strain. The State Bank of Pakistan’s inflation target range is set at 5% to 7%.
Economists attribute the spike in inflation to significant increases in transport costs and perishable food prices, both rising by approximately 15%, coupled with a severe foreign-exchange crunch and a soaring oil import bill. These factors have diminished purchasing power and exerted a heavy toll on economic activity, the report highlighted.
Pakistan’s heavy reliance on imported energy and its fragile balance-of-payments position make it particularly vulnerable to external shocks, exacerbated by the global disruption in supply chains due to the US-Iran conflict. The recent 100 basis points hike in Pakistan’s policy rate by the central bank, from 10.50% to 11.50%, aimed at curbing inflation, has been criticized by economists as a misdiagnosis of the economic situation.
The escalation in interest rates poses a risk of dampening investment and potentially steering the economy towards stagflation. While higher interest rates are typically used to cool an overheated economy driven by excessive demand, Pakistan’s inflation is primarily rooted in supply-side issues, experts argued. Analysts also noted a growing trend of banks favoring lending to the government over the private sector, as low confidence and uncertainty lead to investments in government securities rather than business credit.
Prime Minister Shehbaz Sharif highlighted that Pakistan’s oil import bill surged from $300 million to $800 million following the US-Iran conflict, effectively undoing the economic progress made over the past two years.
