About 60% of Pakistan’s population falls in the “transitory poor” category; this fraction of the population is more vulnerable to abrupt price changes. During conflicts and unrest in the country, perceptions about inflation cause more inflation. The prevailing general perception about high prices triggers prices to rise even higher, which directly reduces real income and affects low-income quintiles more severely.

Pakistan's Bureau of Statistics publishes three price measures: SPI (Sensitive Price Indicator), CPI (Consumer Price Index) and WPI (Wholesale Price Index). For everyday consumers, the SPI stands out. The CPI's monthly release and broad basket, which includes luxuries most people never buy, make it slow and imprecise when prices are moving fast.

Published every Friday, the SPI tracks 51 essential items, including food staples, energy, and basic utilities, across 50 markets in 17 cities, capturing price swings in real time rather than weeks later.

What sets it apart further is its breakdown by five expenditure quintiles, revealing exactly who bears the most pain when prices rise. With Gulf tensions still rippling through local markets, that detail makes all the difference. See the distinct expenditure quintiles’ compositions in Table 1 below.

Table 1: SPI Quintiles’ Compositions

The Gulf conflict aggravated from the 8th week of 2026; to explore the effect of the ongoing conflict, limited data over the first sixteen weeks of 2026 are available. It is observed that all SPI quintiles, along with the combined SPI, remained higher in 2026 than over the same period during 2025. It reflects the persistent price hike over the period; see Figure 1 below.

A persistently widening gap can be seen in all quintiles between 2025 and 2026. All expenditure groups suffer from the ongoing conflict. These sixteen weeks of 2026 are volatile as far as price changes are concerned. During this period, petroleum prices were raised twice by the government and dropped twice; it is the same period when the government announced austerity measures and provided subsidies in the petroleum and transport sectors.

Inflationary Spillover: To trace which quintile suffers the most, we calculate year-on-year inflation for each quintile (infQi; i = 1, 2, 3, 4, 5) and combined SPI (infCOMBINED), see Figure 2 below. The inflation for the second lowest consumption group (infQ2) faced the highest inflation throughout the period until the 15th week, when the highest consumption quintile inflation (infQ5) crossed it.

An expected cut in disposable income due to inflation will decrease consumption and demand; this phenomenon may result in a slowdown of economic activity at the macro level

An expected cut in disposable income due to inflation will decrease consumption and demand; this phenomenon may result in a slowdown of economic activity at the macro level

The highest expenditure group (quintile) enjoyed the lowest inflation until the 10th week of 2026, when the Gulf conflict became worse. Since the 10th week of 2026, the lowest expenditure group (quintile) faced minimum inflation; being most vulnerable, this may be because the lowest expenditure group restricted its consumption, or it may be the effect of government subsidies.

By the 15th week, all quintiles’ inflation had moved into double digits except for the lowest expenditure group. Keeping in view the persistent geopolitical conflict, an upward trend of inflation can be fairly expected to prevail.

During the ongoing conflict, petroleum is the most affected item. The reason for Q2 inflation remaining highest is explained by its food and transport-dominant consumption profile; see Table 1 above. Due to diverse and lower food share profiles, the highest quintile inflation remained lowest during most of the period; it seems that initially higher income offsets the severe effect of inflation for the upper expenditure group until the 15th week. Very recently, in the 16th week, a relative calm can be observed in all quintiles’ year-on-year inflation.

To trace the frequent effect of information transmission, we calculate week-on-week inflation for each quintile (infQiW; i = 1, 2, 3, 4, 5) and combined SPI (infcombinedW), see Figure 3 below. Initially, until the 7th week of 2026, relative tranquillity can be seen in week-on-week inflation in all consumption groups, including the combined indicator.

Afterwards, very high inflation volatility is observed; it reflects the effect of news transmission in price changes. Recently, by the 16th week, a sharp dip in weekly inflation indicates the regulatory effect of government interventions, including subsidies and austerity measures across the country.

Implications: The above analysis recommends some suggestions and submissions for authorities to stabilise frequent price changes and provide relief during these hard times for the general public of Pakistan, who are looking at their representatives residing in the decision-making forums and institutions.

Being open and small, Pakistan is a price-taking economy. During the conflict, petroleum prices soared abruptly and substantially. The pass-through of petroleum price changes to other commodities is simultaneous and inexorable. The government took necessary and immediate decisions to raise petroleum prices well before hoarding started; it worked, and as a result, no shortage is seen even after one and a half months of the conflict. The role of good governance at the micro level is central to implementing government decisions in true letter and spirit; micro governance is inevitable to stabilise price changes and their disproportionate pass-through.

Consumption has remained a substantial contributor to total GDP over the last few decades; any austerity measure needs careful implementation. Careful monitoring and course correction are essential to check the effect and implementation of any austerity measure. To support lower-income groups, the government is already providing targeted subsidies, particularly in the petroleum and transport sectors. It is suggested to provide targeted subsidies in food and other energy items, including petroleum, gas and electricity.

An expected cut in disposable income due to inflation will decrease consumption and demand; this phenomenon may result in a slowdown of economic activity at the macro level. The coupled decrease in consumption and demand may lead to lower GDP growth in the near future.

On the other hand, a substantial amount of subsidies may put fiscal pressure during the current fiscal year and beyond; there is a need to rationalise the subsidies targeted at the lowest income groups, otherwise one can expect a mini-budget in the current fiscal year and a significant cut in non-development expenditure in the following fiscal years.

BISP’s platform can be utilised for targeted subsidies. Attentive and staid consideration of the above suggestions will lead to a prosperous and resilient Pakistan.

© The Friday Times