Latest Petrol Bomb Fuels Inflation Fears in Pakistan
On account of rising petrol and diesel prices, Pakistan’s inflation is predicted to continue stubborn into the middle of August and into September. This will rekindle the country’s stagnating economy’s cost of living issues, which will probably cause more disruptions in demand because of higher transportation expenses.
As a result of the previous administration’s strong tightening effort, consumer prices have risen sharply since April 2022; the caretaker administration has started out on the same basis.
Read More: SBP Chief Blames Global Factors For High Inflation in Pakistan
The caretaker government boosted the cost of gasoline to 290.45 cents per litre and high-speed diesel to 293.4 cents per litre on Tuesday, bringing the cost of both fuel categories to an all-time high. As a result, inflationary predictions have gotten worse.
Leading analysts believe that since the federal government’s hawkish stance is proving to be harmful, the upcoming monthly report on consumer prices for August will further delay expectations for policy easing towards the end of this year and reinforce inflation forecasts to remain above 29 percent.
According to A H H Soomro, an economist,
These days, inflation will continue to be sticky. Unrestrained currency movements are the issue. The rupee needs to settle down shortly. Although there may be unmet import demand, the real issue is a lack of remittances and exports. The expectations that we already had for the year of +20% inflation have not changed. Don’t be shocked if fuel costs climb higher as a result of PDL, IFEM, and OMC margin revision.
Recall that Islamabad already agreed to unpleasant measures like additional taxes, high energy prices, and a market-based exchange rate that has already fueled inflation, in addition to a petroleum tax of up to Rs. 55 per litre.
Read More: Weekly Inflation Crosses 30% as Food Prices Rise
Ishaq Dar, a former finance minister, said in July, “You all know the international commitments we have with the IMF regarding the petroleum levy,” implying that these actions might have been avoided without the pledges.
In the meantime, the government has so far refrained from making an upward revision for two consecutive biweekly reviews, meaning that last month’s July vow to enhance dealer margins is still in limbo. The possibility of strikes is still very real.
Inflation, SBP’s Reaction
According to figures from the Pakistan Bureau of Statistics (PBS), the benchmark consumer price index, or CPI, jumped to 28.3% in July. The change in the weekly SPI and monthly CPI yearly inflation rates has increased the most under Dar’s IMF taxes, fuel, and electricity prices since September 2022, which is the worst for any finance minister to have served during Pakistan’s eventful 76-year existence.
Read More: The Disturbing State of Falling Remittances By Overseas Pakistani
Even though Islamabad promised to limit new tax regimes in 2023–2024, the overcharging of taxes on electricity bills tainted the FY23 inflation figures, which were high. This dashed hopes that the State Bank of Pakistan might start to reduce its benchmark rate, which is currently at 22 percent, in the near future. The general expectation is for a rise of 100–200 basis points in the coming month’s monetary policy review.
Overall, additional increases in the price of petroleum will have an impact on inflation, the economy, and politics. If the situation gets worse, they may even affect when the general elections will take place.
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