Money basics · lesson 1 · 5 min
Inflation, the invisible tax
Why money that sits still shrinks, how much Pakistani prices have risen since 2010, and how to judge any return against inflation.
Rs 1,000 kept at home since the end of 2010. What does it buy today, in 2010 prices?
What inflation is
Inflation is how fast prices rise. At 10% a year, Rs 1,000 today buys what Rs 909 bought last year. Savings that earn less than inflation lose value, even while the number in your account grows.
Pakistan measures it with the consumer price indexThe price of a fixed basket of what households buy (food, fuel, rent, school fees, clothes), tracked every month by the Pakistan Bureau of Statistics. When the basket costs 10% more than a year ago, inflation is 10%., published every month by the Pakistan Bureau of Statistics. On the news it’s often called mehngai.
How much Pakistani prices have risen
From 2010 to 2025, prices rose by 9.5% a year on average. That average hides big swings: 2023 averaged over 30%, and 2025 under 4%. In August 2026, inflation was 11.1% year on year.
- 20152.5%
- 20163.8%
- 20174.1%
- 20185.1%
- 201910.6%
- 20209.7%
- 20219.5%
- 202219.9%
- 202330.8%
- 202412.6%
- 20253.5%
PBS via World Bank/IMF. Latest reading: 11.1% year on year (2026-08).
Add it up and Rs 1,000 from the end of 2010 buys what about Rs 238 bought then. Try any year and amount in the inflation calculator.
Real return: the only return that counts
A return only means something next to inflation. The real returnWhat your money earns after inflation: (1 + return) ÷ (1 + inflation) − 1. It tells you whether your money buys more or less than before. It’s not simple subtraction: 12% with 10% inflation is 1.8%, not 2%. is what’s left after prices have done their work.
Right now the State Bank’s policy rate is 11.5% and inflation is 11.1%. Savings earning the policy rate make about +0.4% a year after inflation, before tax. Most bank accounts pay less than the policy rate, and tax comes out of the profit. Work out your own in the real return calculator.
Key takeaways
- Money that sits still shrinks. Since 2010, Pakistani prices rose ×4.20.
- Judge every return against inflation: (1 + return) ÷ (1 + inflation) − 1.
- Tax comes out of the profit before inflation does its work. Check both.
Next, see what Rs 1 lakh from any year became in gold, the PSX, dollars and savings: the Rupee Time Machine.
Sources: consumer price index, Pakistan Bureau of Statistics via the IMF (2015-16 = 100), to August 2026. SBP policy rate, held at 11.5% on 14 September 2026.