Pakistan’s fuel surge could push inflation over 15%, spark policy rate hike

Following a record increase in petroleum prices, Pakistan is bracing for a fresh wave of inflation and monetary tightening, with analysts warning that CPI inflation could exceed 15% in the coming months, driven largely by higher fuel and energy costs.

The spike comes in the wake of a steep hike in petrol and diesel prices as the government struggled to sustain massive subsidies.

The Consumer Price Index (CPI)-based inflation clocked in at 7.3% on a year-on-year (YoY) basis in March 2026, compared to 7% in the previous month and 0.7% in March 2025.

Meanwhile, the Sensitive Price Index (SPI)-based inflation for the week ending April 2 increased by 1.01%, mainly due to a rise in the prices of Liquefied Petroleum Gas (LPG), which surged by 13.28%, according to weekly data released on Friday by the Pakistan Bureau of Statistics (PBS).

“Inflation will rise to 13% in April and touch above 15% in May and June,” said Ali Khizar Aslam, Director Research at media, while talking to Aaj News on Friday.

As a result, the economic expert is now anticipating a 1–2% increase in interest rates in the upcoming monetary policy review, as the central bank moves to contain inflationary pressures.

Currency pressures may also intensify, with projections suggesting a 5–7% depreciation in the rupee, “pushing the USD at around 290 against PKR by June,” he added.

Last month, the central bank decided to keep its benchmark policy rate unchanged at 10.5%. The decision was in line with market expectations, which anticipated the central bank to maintain the status quo in the wake of escalating geopolitical tensions in the Middle East, which have swelled energy prices, raising fears of a new wave of inflation.

 Meanwhile, an emerging energy challenge complicates the outlook, noted Khizar, adding that a potential shortfall in RLNG supplies from Qatar, coupled with transmission bottlenecks, could lead to higher electricity costs and intermittent load shedding, particularly in Punjab during peak summer months.

On Thursday, the government announced a massive increase in fuel prices, with diesel prices rising by 55% and petrol by 43%.

However, a day after the sharp increase, Prime Minister Shehbaz Sharif on Friday announced that the government would reduce the petroleum levy on petrol by Rs80 per litre for one month.