Petrol bomb: Higher prices fuel double-digit inflation fears

KARACHI: The fuel is on fire, and not literally. With the latest Rs10.49/litre increase in the primary fuel prices, inflation is all set to pose a double-digit growth this month. It seems the decision-makers are pursuing a rigorous demand suppression strategy, and that at a time when the economy is on a recovery runway.

Generally, elevated fuel prices increase inflation and reduce economic growth. In terms of inflation, oil prices directly affect the prices of goods made with petroleum products, as well as depress the supply of other goods because of increased cost of production.

Higher petrol and diesel prices lead to higher household spending, either directly or indirectly. The impact is more visible in the urban economy, which can be attributed to lower consumption of petrol and diesel in rural areas.

It is certain the situation will get tougher for the common man, as the income growth is not in line with the growth in the cost of living, while the government’s popularity will take further hit, as there is already an uncontrolled increase in inflation and commodity prices.

Mehmood Hamid, president of the Small Traders Association, said the successive hikes in fuel and electricity prices had started a spiral of inflation. “[The] buying power of [the] people has significantly decreased, and consumers are only buying essential goods. The kind of buyer markets used to have a couple of years ago are no more.”

“Now, we are at a stage where [the] people are cutting the consumption of essential edibles such as sugar, pulses, oil and even flour. Buyers are also compromising on the quality due to rising prices.” Hamid criticised the government and said it only did lip-service and failed to provide performance.

Muzzamil Aslam, spokesman for the Ministry of Finance, said there would not be any significant impact on inflation numbers, as the food prices were declining. “Petroleum prices increased 8.24 per cent versus 13.5 per cent in [the] international market during the last fortnight. The government is still compromising its due share in taxes and levy.”

Aslam said that the total petroleum levy incorporated was Rs5.62/litre, while sales tax was calculated at 6.84 per cent.

Although motor fuel has little weightage in the Consumer Price Index (CPI) basket, the government’s mouth pieces do not take the chain reaction into consideration. And in the absence of proper price control mechanisms and anti-profiteering measures, the impact is far deeper.

“[The] prices of daily use items are raised with fuel and electricity price hike, but prices don’t cool down in the same proportion, whenever the energy prices ease,” Fazal Ilahi, a consumer said.

Khurram Schehzad, CEO of Alpha Beta Core, said the impact of this exorbitant fuel price hike would be gradual. “I don’t think there would be a significant increase in October inflation numbers. However, monthly inflation would be in double digits for several months after that.”

Schehzad said that the actual impact on the prices of daily household goods, including edibles, would inch up after a week or fortnight; thereby, jacking up inflation.

This price hike, notified last week, is widely criticised by analysts, industrialists and the general public alike. Most took to the social media, expressing their dismay and somewhat no-confidence in the government’s ability to deal with the economic challenges.

“[The] petrol prices increased by a whopping Rs10.49!!! A true petrol bomb!,” Hasan Zaidi, a senior journalist and Director of the KaraFilm Festival, tweeted.

“[The] current government has once again increased the price of petrol by Rs10.49 per litre. The Pakistani nation is already fed up with the rise in the prices of essential commodities and from above the government has made petrol more expensive. We are hit by inflation,” another journalist Mujeeb-ur-Rehman tweeted.

A A H Soomro, CEO of KASB Securities, said that motor fuels had a 2.7 per cent CPI weight, and inflation would definitely go up in the next few months.

According to reports, the Oil and Gas Regulatory Authority (Ogra) had worked out an increase of Rs5.50/litre in the price of petrol and that of high-speed diesel (HSD) by around Rs9/litre based on the existing tax rates, import parity price and the rupee depreciation.

The increase for other products, kerosene and light-diesel oil, has been calculated at around Rs3 toRs5/litre. The major increase had been worked out mainly because of exchange rate loss and a minor impact of international oil price.

The Ministry of Finance said oil prices in the international market had risen around $85/barrel, which was the highest since October 2018. “Importantly, the entire energy chain prices have witnessed a strong surge in the last couple of months due to higher demand for energy inputs and supply bottlenecks.”

Analysts believe the government passed on a higher increase in the prices to consumers by jacking up the tax rates to ensure revival of the IMF programme on successful completion of the sixth review and secure disbursement of around $1 billion.

Businessmen Panel chairman Mian Anjum Nisar said that the government had raised the petroleum product prices for the third consecutive time in a month’s period, lifting it by more than Rs20/litre to Rs137.79/litre.

Rejecting the latest increase in electricity and petroleum prices, he termed it a cruel decision by the authorities, which will bring the economy to a grinding halt. “Millions more will be unemployed, while millions are facing abject poverty and starvation,” he said.

He also said the government had dropped a new bomb on the trade and industry at a time when inflation and unemployment was at an all-time high and the economy was facing total collapse because of the government’s incompetence.