Inflation is the reason PKR 1,000 buys less today than it did a few years ago. After reading this post you will be able to explain inflation in plain words, read the number the Pakistan Bureau of Statistics publishes every month, and work out what rising prices do to money that you keep.
What inflation means
Inflation is a general rise in the prices of goods and services over time. The word "general" matters. If only the price of tomatoes goes up, that is a price change. Inflation is when prices across the whole shopping basket tend to move up together, so that the same amount of money buys less than before. Economists call this a fall in purchasing power.
The State Bank of Pakistan (SBP) looks at it from the other side. Its law defines price stability as low and stable inflation, guided by the government's medium-term target, and it makes price stability the Bank's main objective. The SBP says it follows a medium-term inflation target of 5 to 7 percent. The range is not zero, which shows that the aim is prices that rise slowly and predictably, not prices that never move. What causes trouble is inflation that is high or that jumps around, because nobody can plan a household budget, a business or a saving goal around it.
How Pakistan measures it
The number you hear on the news is the Consumer Price Index, or CPI. The Pakistan Bureau of Statistics (PBS) collects prices every month and builds an index from them. According to its September 2026 release, the urban CPI covers 35 cities and 356 consumer items, and the rural CPI covers 27 rural centres and 244 consumer items. The national figure is a weighted average of the two.
The weights decide how much each group counts. In the national index, food and non-alcoholic beverages carry 34.58 percent of the weight, and housing, water, electricity, gas and other fuels carry 23.63 percent. Recreation and culture carry only 1.59 percent. This is why a jump in electricity bills moves the index far more than a change in the price of a cinema ticket.
Two numbers matter when you read a release:
- Year on year compares this month with the same month a year earlier.
- Month on month compares this month with the month before.
In the PBS release for September 2026, headline CPI inflation was 10.26 percent year on year and 1.27 percent month on month. The average for July to September 2026, compared with the same months a year earlier, was 10.20 percent.
A year-on-year rate of 10.26 percent does not mean that every price rose by that much. It says that, on average across the basket and its weights, prices in September 2026 were about 10.26 percent higher than in September 2025.
Prices also do not all move together. In the same release, the urban list shows electricity charges up 15.28 percent and motor fuel up 10.76 percent over August, while tomatoes fell 24.67 percent and chicken fell 8.14 percent. These are one month's figures and will have changed by the time you read this, so look up the latest PBS release for the current number.
Your own inflation is not the headline number
The headline rate describes an average household. Yours depends on what you spend on. A family that spends a large share on electricity, fuel and rent felt more of September's rise than a household whose costs are mostly fixed.
To find your own rate, list your five biggest monthly costs, write down what each one cost a year ago and what it costs now, and see which ones moved the most. It takes ten minutes and it tells you more about your situation than any national average.
A worked example
Suppose you keep PKR 100,000 in cash and prices rise by 10 percent a year. The figures below are illustrative: they are not a forecast and not a target for you.
| After | A basket that costs PKR 50,000 today | What your PKR 100,000 buys, in today's prices |
|---|---|---|
| 1 year | 55,000 | 90,909 |
| 2 years | 60,500 | 82,645 |
| 3 years | 66,550 | 75,131 |
The PKR 100,000 is still PKR 100,000 on the notes. What changes is what it buys. After three years of 10 percent a year, it buys what about PKR 75,131 buys today. The right-hand column divides by 1.10 for each year: 100,000 divided by 1.10 is about 90,909, and that divided by 1.10 again is about 82,645.
Illustrative figures, not a target for you.
Who is hurt by inflation
Inflation hurts anyone whose income or savings grow more slowly than prices: a salary that stays the same for years, cash kept at home, or a deposit that pays less than the rate at which prices rise. Because the fixed sum a borrower owes is worth less each year, inflation can ease a fixed debt, but a borrower's own costs rise too, and many loans carry a rate that moves. That is a description of how it works, not a suggestion to do anything.
What the State Bank does about it
The SBP's Monetary Policy Committee sets a policy rate, which is its main tool. The SBP says the full effect of a change on inflation often takes 6 to 8 quarters, which is 1 to 2 years. So today's inflation reflects past decisions as well as events such as oil prices.
In its statement of 15 June 2026, the committee said headline inflation had risen to double digits in April and May, and that it judged its policy stance appropriate to guide inflation towards the target range of 5 to 7 percent over the medium term. Whether that happens is for the figures to show in the coming months.
Three questions to ask
Nothing in this post tells you what to do with your money. It gives you three questions:
- What will my money buy in a year, not just how many rupees will I have?
- Is the place where my money sits paying less than, more than or about the same as the rate at which prices are rising?
- Do my income and my biggest costs move with prices?
Common mistakes
Reading the headline as your own rate. Your costs are not the national basket.
Treating one month as a trend. A single month can jump with fuel or electricity and ease the next.
Confusing a slower rate with falling prices. If inflation slows from 11 percent to 9 percent, prices are still rising, only more slowly.
Waiting for prices to return to where they were. A slower rate seldom brings old prices back.
Judging money by the number of rupees. What counts is what they can buy.
Sources
- Pakistan Bureau of Statistics, Press release on consumer price index (CPI) inflation for the month of September 2026. Checked 24 October 2026. Used for the year-on-year, month-on-month and July to September figures, the coverage and weights of the CPI, and the examples of price changes.
- State Bank of Pakistan, Monetary policy. Checked 24 October 2026. Used for the definition of price stability, the medium-term target of 5 to 7 percent and the time that monetary policy takes to work.
- State Bank of Pakistan, Monetary Policy Statement of 15 June 2026. Checked 24 October 2026. Used for the committee's description of inflation in April and May 2026 and its aim to guide inflation towards the target range.