Headline inflation for June clocked in at 12.6 per cent on the year, data from the Pakistan Bureau of Statistics (PBS) showed on Monday.

The reading is higher than the 11.8pc year-on-year rise in May, but is well below the average reading of 23.4pc for the financial year which ended June 30.

Month on month, the headline consumer inflation, measured by a basket of goods and services called the Consumer Price Index (CPI), rose 0.5pc in June.

The June CPI reading is in line with the forecasts of both the State Bank of Pakistan and the finance ministry, which had spoken of an uptick due to spending linked to Eidul Azha holiday.

The index has eased from a historic high of 38pc in May 2023, a slowdown that has provided relief for an economy beset by high inflation and low growth.

The central bank last month cut the main interest rate by 150 basis points — the first cut in nearly four years — bringing it down from a historic high of 22pc.

Finance Minister Muhammad Aurangzeb has said he expects further cuts this year in the face of falling inflation.

Rate cuts are key for the government as it seeks to rein in its fiscal deficit to 5.9pc of GDP, of which interest on local debt is a big part. Fiscal tightening is a key part of bailout talks with the International Monetary Fund (IMF).

The government is pushing for a long term bailout in the region of $6-$8 billion, and says it wants an agreement this month after it passed a tax-heavy budget on Friday.

However, in its monetary policy statement last month, the State Bank also warned of an uptick in inflation beyond the seasonal rise — pointing to expected taxation measures in the annual budget.