Zafar Iqbal
Inflationary pressures are quietly building in Pakistan’s economy. This is not a repeat of the devastating commodity supercycle of 2022, nowhere near it in scale or severity, but the warning signs coming from the wholesale front deserve serious attention. The fuel price shock has placed itself squarely at the centre of the recent surge in the Wholesale Price Index, and its second-round effects are now becoming increasingly visible in core consumer price inflation. This was a trend that looked inevitable when WPI first crossed into double-digit territory earlier this year.
Although wholesale inflation eased marginally from last month, it remains elevated at close to thirteen percent year-on-year. That is not a number that warrants comfort. Transportable goods continue to drive the increase, having risen by an average of thirty-eight percent over the past two months alone. The economy is absorbing a substantial cost shock, and not all of it has reached the consumer’s doorstep yet.
The composition of the WPI basket explains much of the pressure. High-speed diesel, petrol, kerosene oil, mobile oil, and furnace oil together account for roughly eleven percent of the wholesale basket, a significantly larger share than their weight in urban and rural consumer price baskets, which sit at just 2.9 percent and 2.5 percent respectively. Diesel alone carries a weight of 5.5 percent in the WPI. Its price has risen seventy percent year-on-year. Furnace oil is up forty-four percent, and petrol has climbed sixty-two percent. These are extraordinary movements in costs that touch virtually every corner of the supply chain.
The geopolitical dimension adds further uncertainty. The on-again, off-again nature of the United States-Iran conflict and recent developments in the region suggest that the oil market may not have found a stable floor. That matters enormously for Pakistan, because fuel price transmission to retail inflation tends to be swift. What happens at the refinery gate does not take long to appear on the grocery receipt.
The next phase of inflation transmission is likely to come from a wider range of manufactured goods. Prices of soaps and detergents, chemicals, construction materials, apparel, and plastic products have all been climbing steadily in wholesale data. Unlike motor fuels, the pass-through for these categories tends to occur with a lag, meaning the pressure that is already present in the pipeline has simply not arrived yet.
Some early evidence of this dynamic is already visible. Footwear prices have risen twenty-nine percent month-on-month in consumer inflation, yet the corresponding wholesale inflation for the same category stands at fifty-one percent. The gap signals that additional retail price adjustments are still in the pipeline. Appliances and vehicles have also recorded sharp increases, with some registering the highest monthly gains on record. It would be unrealistic to expect these wholesale-level pressures to remain contained and never find their way through to the consumer.
Food inflation has remained comparatively restrained, largely because of favourable crop outcomes, with wheat being a notable exception. But even this relative stability faces a serious test. Everything eventually needs to be transported, and wholesalers cannot absorb higher logistics costs indefinitely. So far, many have done so, but that buffer has its limits and those limits are being tested month by month.
Adding further complexity to the outlook is the growing likelihood of a strong El Niño event. Should weather patterns deteriorate in the months ahead, the entire inflation picture could shift dramatically, particularly for food prices. That remains a risk on the horizon, but it is one that policymakers cannot afford to dismiss or underestimate.
The inflation narrative would also be incomplete without pointing to persistent anomalies within the WPI data itself. Serious questions surround the Pakistan Bureau of Statistics’ treatment of industrial electricity tariffs, where the index appears to overstate costs by failing to fully capture downward revisions implemented earlier in the year. The distortion undermines the accuracy of the signal the index is supposed to provide.
Even more difficult to explain is the treatment of cotton yarn prices in the WPI, which have remained entirely unchanged for fifty-five consecutive months. That is not a data point. That is a data failure. Market evidence makes overwhelmingly clear that cotton yarn prices experienced frequent and often significant fluctuations across this period, none of which appear to have registered in the official series. An inflation index that ignores five years of price movements in a key industrial input is not measuring reality. It is flattering it.
These methodological shortcomings do not eliminate the broader message that wholesale inflation is sending. They obscure precision, but they do not silence the signal. That signal remains clear: a substantial portion of the recent increase in wholesale prices has yet to complete its journey through the supply chain to the retail consumer. As things stand, consumer price inflation may still have considerable catching up to do.
For policymakers, the lesson is straightforward. Wholesale inflation is not a distant technical indicator. It is a leading map of where consumer prices are heading. Ignoring its trajectory, or relying on indices that carry known measurement failures, is not prudent economic management. Pakistan has been through enough inflation-driven suffering in recent years to know what the early warnings look like. This is one of them.
