Inflation likely to remain in double digits in April

ISLAMABAD: Inflation is expected to stay in double digits in April 2026, with underlying price pressures continuing to weigh on the economic outlook, according to a research preview issued by Optimus Capital.

The report, released on Wednesday, said that although food supply conditions have improved in some areas, overall inflation remains elevated because of persistent energy costs, currency-related pressures and structural supply-side constraints.

Optimus Capital said energy inflation remains the main factor behind sticky prices, with year-on-year energy inflation projected to approach around 30% in April 2026. It linked this trend to sustained global oil prices, limited fiscal room for subsidies and the continued pass-through impact of fuel price adjustments.

Transport costs are likely to remain volatile as a result, feeding directly into headline inflation and also affecting other segments, including logistics and food distribution.

On food prices, Optimus analyst Maaz Azam said inflation in this category, while relatively contained in headline terms, remains exposed to intermittent shocks. He noted that supply conditions have improved in certain segments, but said the gains are uneven and temporary.

Seasonal supply patterns, infrastructure bottlenecks and border-related disruptions continue to cause localised shortages. Agricultural income remains vulnerable to logistics inefficiencies, which could offset gains from better harvests in some crops.

External and domestic risks

The report highlighted inflation risks emerging from both domestic and external channels. Easing trade flows through the Iran-Central Asia corridor could help reduce supply constraints over time by improving regional connectivity and lowering reliance on traditional trade routes.

At the same time, it identified the continued closure or restricted functioning of the Afghan border as a major structural obstacle, saying this limits the smooth movement of essential commodities and leads to periodic price distortions.

Seasonal weather conditions were also flagged as a medium-term risk. The possible onset of El Niño conditions from mid-2026 could disrupt agricultural cycles, water availability and crop yields, adding uncertainty to food inflation projections, especially for weather-sensitive staples.

While current water reservoir levels are said to be relatively better than last year, the outlook remains under close watch because of climate variability risks.

April outlook and policy stance

For April 2026, Optimus Capital expects the National Consumer Price Index to increase by around 10% year-on-year, extending the period of double-digit inflation. On a month-on-month basis, inflation is likely to be led by transport-related increases, mainly due to fuel price adjustments.

Housing and utilities are also expected to make a modest contribution, while LPG prices may add further pressure. Food inflation, though relatively subdued on a monthly basis, is still expected to remain positive, limiting any significant easing in headline inflation.

Core inflation is projected at around 10% year-on-year, reflecting persistent underlying demand pressures and limited room for disinflation in the near term. The stickiness in core inflation indicates that price pressures are not only seasonal or supply-driven, but are also embedded in broader structural factors such as wage adjustments, exchange rate pass-through and rigid input costs in manufacturing and services.

Looking ahead, Azam said the macroeconomic environment remains fragile and highly sensitive to external developments. Government efforts to secure external financing have helped stabilise short-term balance of payments concerns, but inflation and growth challenges remain.

Oil prices are expected to remain sticky, while exchange rate fluctuations and imported inflation risks continue to pose upside threats to the inflation outlook.

In this setting, the State Bank of Pakistan is expected to remain cautious in its monetary policy approach. While there is still room for policy easing, a 50 basis point rate cut cannot be ruled out and would depend on inflation trends, external account stability and overall economic conditions heading into September-October 2026.

For now, the central bank is likely to maintain a data-dependent approach, balancing support for growth with the need to contain inflation.