Islamabad: Pakistan's inflation forecast for the fiscal year 2027 has been revised downward, with expectations now set at an average of 7.0 to 7.5 percent, representing a decrease of approximately 100 basis points from earlier projections. This adjustment comes in the wake of the anticipated resolution of regional conflict, which has led to a significant reduction in Brent oil prices.

According to JS Global, Brent oil prices have plummeted by 39 percent, reaching $71.8 per barrel from their peak of $118.35 per barrel as of March 31, 2026. The updated inflation outlook assumes Brent oil prices will stabilize between $70 and $75 per barrel, alongside a currency depreciation of 5 to 6 percent. Additionally, the forecast factors in a 15 percent increase in gas prices in August 2026, followed by a 5 percent reduction in January 2027, adhering to a semiannual adjustment pattern.

The report outlines various components affecting inflation, including food inflation, which is expected to average 0.67 percent month-over-month, with sharper increases during Eid and Ramadan months. Meanwhile, the housing, water, electricity, and gas segments are projected to rise by 0.55 percent monthly, with rent adjustments occurring quarterly.

Transportation costs have been recalculated based on a new formula, suggesting a potential decline in fuel prices by 14 percent in July 2026. The Pakistani government has projected an 8.2 percent inflation rate for FY27, while the International Monetary Fund forecasts a slightly higher rate of 8.4 percent. The State Bank of Pakistan is set to update its inflation outlook at the upcoming Monetary Policy Committee meeting on July 27, 2026.

Interest rates are also under review, with a potential rate cut anticipated in September 2026, which could lower the policy rate to 10.5 percent. By the end of FY27, a further reduction to 10.0 percent is expected. However, the central bank is likely to maintain the current rate in July due to the ongoing regional ceasefire and potential disruptions from the monsoon season.

Key risks to the inflation forecast include fluctuations in oil prices and currency depreciation. Excessive rainfall could also impact food inflation, necessitating adjustments to projections.