"The major concern on the country's macroeconomic profile is the sharp rise in domestic inflation during 2005," the State Bank of Pakistan said in its report on the economic performance during the fiscal year ending June 30.

The inflation rate surpassed 11 percent after the consumer price index hovered between nine and 10 percent through most of 2004-05, official statistics said.

Inflationary pressure that had been building up in the preceding year, remains "unexpectedly strong" in 2005, the bank said.

"This is due to both supply and demand pressures in the economy," it said.

Prime Minister Shaukat Aziz last week said Pakistan's economy would post impressive growth of 8.3 percent in the current fiscal year to June, the first time in two decades.

While endorsing the government's claim the bank warned that growth might be less in the next fiscal year begining in July.