KARACHI: Pakistan’s inflation rate increased to 21.3 percent in June, the highest in 13 years, after the government of Prime Minister Shehbaz Sharif raised prices of petroleum products by over 90 percent as prior action to meet International Monetary Fund's (IMF) conditions for the revival of $6 billion loan program.
Inflation in Pakistan stood at 13.8 percent in May and 9.7 percent in June 2021. On a month-on-month basis, it increased by 6.3 percent in June as compared to an increase of 0.4 percent in the previous month, the Pakistan Bureau of Statistics (PBS) said.
The South Asian country has thrice increased the prices of petrol and diesel, eventually taking the two commodities to Rs248.74 and Rs276.54 per litre respectively. since coming into power after ouster of the former Prime minister Imran Khan in April 2022. Former PM Imran Khan had frozen petroleum prices contrary to the conditions agreed with the IMF, which had increased the fuel subsidy amid rising oil prices in the international market.
“Inflation numbers for June are indeed a surprise on the upside, especially the number of 32.01 percent on food inflation represented by Sensitive Price Index is worrisome,” Dr Khaqan Najeeb, former advisor to the Pakistani finance ministry, told Arab News.
“We must also remember that the CPI number of 21.3 percent still does not account for the energy price increase of both electricity and gas as are expected from the first of July 2022. These numbers show elevated commodity prices seeping into Pakistan’s inflation as well as the adjustment of the rupee, which has been 30 percent (lower against dollar) in FY22.”
Economists fear inflation in the country would go further up with the increase in freight and interest rates.
“This inflation rate is too much. It will destroy the poor and even the middle-income segment of the country,” said Dr Ashfaque Hassan Khan, a senior economist.
“Now when the transport charges will increase and the central bank will increase interest rates, food inflation will further jump up because everything in the agriculture sector is running on diesel from a tubewell to a tractor.”
Dr Khan held the IMF loan facility responsible for higher inflation in Pakistan and termed it the "most brutal" program for any country. “The is the most brutal IMF program ever given to any country in the world.”
The rising fuel costs have largely impacted operations of public transport in Pakistan, but transporters are reluctant to increase fares as they fear the public wrath.
“The rising fuel costs have devastated the transport sector as the situation is leading to suspension of operations. We are unable to further raise fares to match the fuel price hike due to dwindling purchasing power of poor masses who travel via public transport,” Irshad Bukhari, president of Karachi transport alliance, told Arab News.
“People from working class are struggling with their limited income to survive. We have raised fares by Rs10 but now it is becoming tough to further raise the fares as people may resort to violence against transporters.”
Pakistani industrialists face the brunt of fuel price hike at a time when the country’s commercial hub is facing unprecedented power outages.
“The cost of production is running out of control due to the substantial increase in energy prices and majority of industries are keeping the mills running through power generators that burn petrol and diesel,” Muhammad Idrees, president of Karachi Chambers of Commerce and Industry (KCCI), told Arab News.
“We are analyzing the true impact of energy rate hikes on businesses and will come up with the exact data. It is getting difficult to timely honor export orders due to rising costs of production as compared to the rates at the time of booking of orders.”
Economists say the government must ensure a smooth supply of food products to contain the sufferings of the lower-income groups.
“Moving forward, the government has to ensure that the supply side, especially of perishable and non-perishable goods, is maintained so that citizens who spend more than half of their income on food are protected,” Najeeb said.
“It is highly important to manage the rate of monetary expansion to low double digits as well as to ensure the supply of cheaper fuels and conservation measures in the country.”
Pakistan’s central bank is scheduled to announce its monetary policy next week, which majority of experts believe would raise the policy rate.
“As per the survey, 80 percent of the participants expect an increase in policy rate in the upcoming monetary policy,” Topline Securities, a Karachi-based brokerage house, said on Friday.
“Around 45 percent of the participants expect policy rate to increase by 100bps (basis points), 30 percent anticipate an increase of 150bps and 5 percent expect an increase of more than 150bps.”
