Pakistan is bracing for a significant surge in inflation this September, with projections indicating a rise to 6.5%–7.0% year-on-year (YoY), up from 3.0% in August. This sharp uptick is primarily attributed to the devastating floods that have wreaked havoc across the country, particularly in the agricultural heartland of Punjab. The catastrophic flooding has led to widespread crop destruction, disrupted supply chains, and inflicted substantial economic losses, all of which are contributing to the anticipated inflationary pressures.
Agricultural Devastation and Surge in Food Prices
The floods have wreaked havoc on Pakistan’s agricultural sector, with over 1.75 lakh acres of farmland in Punjab alone submerged. Major crops, including rice, wheat, and vegetables, have been destroyed, leading to shortages. These shortages are expected to drive food prices up, with key items like meat, rice, vegetables, and sugar—accounting for around 20% of the Consumer Price Index (CPI)—already showing marked price hikes. Early estimates suggest that food inflation could increase by 4.3% month-on-month in September, pushing the fiscal year 2026 CPI forecast to 7.2%, up from an earlier estimate of 5.5%. The impact of these shortages is poised to be felt across the country, affecting household budgets and overall economic stability.
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Economic Impact and Response Measures
The economic toll of the 2025 floods is estimated to reach around Rs409 billion ($1.4 billion), representing 0.33% of Pakistan’s GDP. The agricultural sector has been the hardest hit, with losses exceeding Rs302 billion ($1.0 billion), which accounts for nearly three-fourths of the total damage. The State Bank of Pakistan has opted to maintain its benchmark interest rate at 11% in an attempt to combat inflationary pressures while balancing the recovery efforts.
The central bank’s cautious stance reflects the ongoing challenges posed by the floods and the country’s economic vulnerability.
Humanitarian Crisis and Long-Term Recovery Challenges
The floods have led to widespread displacement, with approximately 2.5 million people affected in Punjab alone. Over 100 lives have been lost, and extensive damage to infrastructure has compounded the challenges faced by communities. As floodwaters begin to recede, recovery efforts are underway to rebuild homes, restore farmland, and provide relief to those most affected. However, these efforts are expected to take months, if not years, and will require substantial investment to address both the immediate and long-term needs of the population. Rebuilding the economy and restoring livelihoods will be a critical focus in the coming months.
