Unprecedented fuel price hike exacerbates inflation-hit masses' woes

• CPI expected to rise between 3%-5% in Sep.
• Extraordinary increase in POL prices reason for CPI hike.
• Interim govt increased petrol price thrice to tune of Rs58.4 per liter.

ISLAMABAD/LAHORE: The extraordinary hike in fuel prices by Rs41 per litre during the last two fortnight reviews will exert significant upward pressure on inflation and take it as high as 30% to 32% in September 2023, against the 27.4% recorded last month, The News reported on Sunday.

The Consumer Price Index (CPI), in September 2023, is expected to rise between 3% to 5%, mainly due to two factors: an extraordinary increase in petroleum products prices and the influence of a lower base effect.

The rising global oil prices, driven by supply cuts from Russia and Saudi Arabia, as well as increased demand from China following an economic stimulus package, may contribute to a further increase in CPI-based inflation in the upcoming months if Brent Crude prices continue to mount.

In background discussions, top official sources said that the caretakers in the last month had hiked the petrol price three times to the tune of Rs58.4 per liter; on August 16 they jacked up the petrol price by Rs17.50 per liter, on September 1 by Rs14.91, and on September 16 by Rs26.02 per liter.

On account of the lower base, the official data shows that in last year September 2022, there was the lowest monthly inflation of 23.2%. The CPI Index fell by 1.15% by August 21, which is the lowest. This is mainly because of a 65.3% fall in electricity prices from August 21 to September 22.

The Pakistan Bureau of Statistics (PBS) has incorporated a flawed methodology to incorporate electricity tariffs for gauging CPI-based inflation on account of base tariff and fuel price adjustments. When there was much hue and cry over inflated electricity bills last month, the PBS data showed that the electricity prices had reduced.

Petroleum prices possessed a weightage of almost 4.6% in the CPI-based index; however, its multiplier effect in the shape of transportation fares will hike inflation in months ahead because the transportation authorities will hike fares. So, the CPI-based data might surge in fares by next month.

Former finance ministry adviser Dr Khaqan Najeeb, when contacted by The News, said there are many factors that affect inflation in Pakistan. They include aggregate demand of goods and services outpacing supply.

The increase in prices of commodities globally has a more pronounced effect in Pakistan, which is heavily dependent on imports like petroleum products, edible oil, machinery, food, vehicles, mobiles and industrial raw materials, he said.

In Pakistan, imports account for more than 25% of GDP. An uptick in administered energy prices, including petroleum prices, and the impact of a weakening rupee and imposition of nearly Rs60 Petroleum Development Levy (PDL), have pushed inflation higher. In Pakistan, weak productivity levels and supply-side disruptions due to floods have also had an effect in pushing inflation higher.

He explained growth in money supply is also a key determinant of long-term inflation in Pakistan. Continued high fiscal deficits near 8% over the last three years, pushing higher government borrowings, have also played a significant role in the increased inflationary trend. Managing inflation beyond monetary tightening is a key challenge for the government to give relief to the people. In this regard, it is important to do vigilant supply-side monitoring of key food items to bring down food inflation.

The government must ensure the supply of cheaper fuels, ensure that there is no undervaluation of the rupee, and curtail expenditures to bring down the fiscal deficit for FY24. Long-run measures should include reform of the energy sector and improving productivity, especially in the agriculture sector, he concluded.

Meanwhile, public transporters have increased fares by 15% to 20%.

Public transporters have increased fares from Lahore by Rs300 to Rs400. Fare from Lahore to Karachi has been hiked from Rs6,600 to Rs7,000, Lahore to Rawalpindi from Rs2,000 to Rs2,200, and Lahore to Peshawar from Rs2,500 to Rs2,750. Similarly, fare from Lahore to Quetta has been increased from Rs4,400 to Rs4,650 while fare of Murree from Lahore has been increased from Rs2,400 to Rs2,650.

Passengers travelling to different destinations showed their concern saying that after the increase in prices of petroleum products, the common man will have to suffer more.

On the other hand, sources related to transporters said that they had to increase the fares after the increase in petroleum prices and spare parts.

Meanwhile, Pakistan Railways is also said to have been mulling an increase in fares of all passenger trains.

On the other hand, Pakistan Bar Council Vice-Chairman Haroon-ur-Rashid and Executive Committee Chairman Hassan Raza Pasha took a strong exception to the historical hike in fuel prices and sharp increase in prices of consumer items.

In a statement issued here on Saturday, they said that the living cost of a common man has become much higher and very difficult since it was already adversely hitting the affordability of the middle and lower middle classes of Pakistanis. They said the interim government has increased fuel prices on the dictation of the International Monetary Fund (IMF) without consideration and realising that in a country where almost half of the population lives below the poverty line, it would badly affect the life of a common man.

"These continuous soaring prices of petrol and electricity have caused great unrest and frustration among the people,” they said, adding that it has shaken the faith and trust of the people in the government since their life has become very hard in real terms, and increase in prices of daily items has seriously affected everyone. The interim government has failed to understand the miseries of people, they added.

They reiterated the earlier demand of the PBC for immediate withdrawal of the privileges, high packages, free fuel, electricity and gas facilities available to bureaucracy, ministers and other government functionaries.

They further demanded that protocol and security staff and vehicles of the government functionaries should also be reduced due to the current worst economic situation of the country. Other undue expenses should also be reduced instead of further burdening the common man.

The elite class should also sacrifice and the government should take immediate and concrete practical steps to control this inflationary pressure and economic crisis to provide relief to the common man.

Meanwhile, the Judicial Activism Panel has challenged the increase in prices of petroleum products in the Lahore High Court. In the petition, the caretaker federal government has been made a party.

The petitioner said there was no mechanism to determine the prices of products, praying the court to nullify the increase in the prices.