The Pakistani population has grappled with high inflation for a major part of the last 5 years. In August 2022, Pakistan’s inflation shot up to 38%, highest ever in over 60 years of CPI reporting. What has since followed is a sight to behold; while being on the brink of financial default, Pakistan has been able to pull down the inflation rate to under 5%.
Pakistan has successfully reduced inflation to around 3.5% in May 2025—a substantial macroeconomic achievement attributed to a combination of tight monetary policy, fiscal restraint, and structural reforms. Following is a list of strategies employed by the state to carry out these reforms that have resulted in substantial relief for the people.
1. Monetary Tightening by the State Bank of Pakistan (SBP)
A country’s policy rate is the primary tool to control inflation. It guides economic velocity and activity inside a country and is also used to carry out policy changes.
Since the end of 2022, the SBP aggressively raised its policy rate. It reached 22% by mid-2023 and played a huge part in curbing hyperinflation. Following sustained improvements, it started easing the interest rate, simultaneously kickstarting economic activity. Key adjustments include pausing rate cuts in March 2025 when inflation slightly increased to 3.5%, and holding the policy rate at 11–12% in subsequent reviews. This disciplined approach helped anchor inflation expectations and restore investor confidence.
2. Fiscal Consolidation and Subsidy Rationalisation
The federal government executed a tight budget, cutting non-development spending by 7% and raising defence expenditure by 20%, consistent with IMF recommendations. Combining fiscal discipline with structural tax reforms helped reduce budget deficits and ease inflationary pressures. It is important to contextualise these numbers with the ongoing inflation rate. Meaning that while the CPI was up by more than 38%, the federal government only raised expenses by and large by 20%.
3. Commodity-specific interventions
Interventions like tariff adjustments and subsidy rationalisation — have been complemented by power tariff reductions, lowering inflation and easing household budgets. Additionally, centralised Social Protection initiatives were also launched aimed to mitigate impacts on vulnerable populations.
4. Management of underlying Risks and Global Developments
Despite global oil and commodity price fluctuations—exacerbated by geopolitical tensions in the Middle East which presented ongoing inflationary threats—the government opted for optimisation strategies in procurement and supply. A Reuters poll suggests the SBP will hold interest rates steady amid such uncertainty hinting at a strong management strategy employed by the government.
All these strategies have impacted public life, detailed as follows.
Impact on Daily Life
The recent decline in inflation, which saw the Consumer Price Index (CPI) fall to as low as 4.1% in December 2024—the lowest in over six and a half years—has begun to subtly ease pressure on the daily lives of many Pakistanis. After months of grappling with soaring food and fuel costs, households are finally experiencing some relief in their monthly budgets. Essential items such as wheat, cooking oil, and vegetables, which had witnessed relentless price hikes in 2022 and 2023, have now stabilized or slightly reduced in cost, easing the lower- and middle-income families.
With interest rates stabilized around 11–12%, consumer loans and mortgages are more affordable, stimulating demand and improving quality of life. The calming of price pressures fosters consumer confidence, boosting spending, retail activity, and supporting small businesses.
Public transport fares, closely linked to fuel prices, have also steadied in urban areas, while utility tariffs have not seen the same aggressive upward revisions, as in previous quarters. This moderation in cost of living is allowing families to redirect a portion of their income from mere survival toward discretionary spending—on education, healthcare, or small savings—reviving consumer confidence that had sharply deteriorated during peak inflation.
Small businesses, too, are breathing easier. With input costs plateauing and financing conditions beginning to normalize, many micro-enterprises in retail and services are witnessing a slow return of customers. Though purchasing power remains constrained compared to pre-crisis levels, the reduced pace of inflation is helping rebuild trust in the economic system—encouraging cautious optimism across markets and communities.
Nonetheless, the relief remains temporary. Much of it hinges on the government’s continued fiscal discipline and external factors such as oil prices and currency stability. For most citizens, the difference is not dramatic—but in a country where inflation once soared past 38%, even marginal relief can feel meaningful. A continued fiscal discipline in turn relies on political stability and policy continuity.
Despite positive trends, vigilance remains crucial. Inflation risk may re-emerge with global price shocks or energy cost spikes. Continued coordination between monetary policy, fiscal management, and IMF-backed reforms—like subsidy rationalisation and improved governance—is essential for anchoring gains.
