AGL 40.00 No Change ▼ 0.00 (0%)
AIRLINK 129.00 Decreased By ▼ -0.53 (-0.41%)
BOP 6.76 Increased By ▲ 0.08 (1.2%)
CNERGY 4.50 Decreased By ▼ -0.13 (-2.81%)
DCL 8.70 Decreased By ▼ -0.24 (-2.68%)
DFML 41.00 Decreased By ▼ -0.69 (-1.66%)
DGKC 81.30 Decreased By ▼ -2.47 (-2.95%)
FCCL 32.68 Decreased By ▼ -0.09 (-0.27%)
FFBL 74.25 Decreased By ▼ -1.22 (-1.62%)
FFL 11.75 Increased By ▲ 0.28 (2.44%)
HUBC 110.03 Decreased By ▼ -0.52 (-0.47%)
HUMNL 13.80 Decreased By ▼ -0.76 (-5.22%)
KEL 5.29 Decreased By ▼ -0.10 (-1.86%)
KOSM 7.63 Decreased By ▼ -0.77 (-9.17%)
MLCF 38.35 Decreased By ▼ -1.44 (-3.62%)
NBP 63.70 Increased By ▲ 3.41 (5.66%)
OGDC 194.88 Decreased By ▼ -4.78 (-2.39%)
PAEL 25.75 Decreased By ▼ -0.90 (-3.38%)
PIBTL 7.37 Decreased By ▼ -0.29 (-3.79%)
PPL 155.74 Decreased By ▼ -2.18 (-1.38%)
PRL 25.70 Decreased By ▼ -1.03 (-3.85%)
PTC 17.56 Decreased By ▼ -0.90 (-4.88%)
SEARL 78.71 Decreased By ▼ -3.73 (-4.52%)
TELE 7.88 Decreased By ▼ -0.43 (-5.17%)
TOMCL 33.61 Decreased By ▼ -0.90 (-2.61%)
TPLP 8.41 Decreased By ▼ -0.65 (-7.17%)
TREET 16.26 Decreased By ▼ -1.21 (-6.93%)
TRG 58.60 Decreased By ▼ -2.72 (-4.44%)
UNITY 27.51 Increased By ▲ 0.08 (0.29%)
WTL 1.41 Increased By ▲ 0.03 (2.17%)
BR100 10,450 Increased By 43.4 (0.42%)
BR30 31,209 Decreased By -504.2 (-1.59%)
KSE100 97,798 Increased By 469.8 (0.48%)
KSE30 30,481 Increased By 288.3 (0.95%)

The fuel price decision is once again upon the government. This time around, it is the new government that faces the question. To raise or not to raise. A large section of keen observers wants the subsidy to end, some, even to the extent of levying all taxes back, even if it means taking the retail price north of Rs200/ltr. Others are prescribing a middle ground that would still lead to a price increase.

There is reason behind the panicky calls. The picture at the external account front has only deteriorated and the oil prices have only risen – ever since the relief package was announced. The falling reserves and the depreciating currency may not necessarily be a consequence of freezing the petroleum prices for a couple of fortnights, but optics do matter.

People want rationing. And the most ideal way prescribed to curb demand is to raise retail prices, which in turn will also relieve pressure on imports and currency both. The demand elasticity remains an unsettled debate to date, but that is for another day. The second camp argues that keeping petroleum prices in check, in times as unprecedented as these, is not the worst idea, for an economy like Pakistan.

Why? Because of the linkages that most transportable items’ prices have with petroleum prices. Motor fuel has less than 3 percent weight in the National CPI basket, so the direct impact should not really be that big a concern at most times. It is the indirect impact, as fuel prices often lead the way to a second round of inflation via pass through in items being transported. The theory goes, most prices (except perishable) tend to not reverse, even if the petroleum prices come back from the peak.

So, the question one needs to ask – are the extra bucks and somewhat reduced import bill – worth the price that the larger economy pays in terms of direct and indirect, often irreversible, inflation? A look at food and fuel inflation plotted for the previous PML-N and PTI governments; tells low fuel prices do help in keeping overall food inflation low. This spreads over two periods of 44 months each – reasonable enough to eek out one-offs.

Of course, food prices will have their own set of variables too, and possibly more significant. But when fuel prices with a weight under 3 percent, does seem to have a lasting impact on food prices with an impact of over 30 percent – one needs to ask the question again. Is it not better to take a chance to let fuel prices revert to mean (not in usual circumstances, but in times as unprecedented as these), than to jack up prices in search of quick bucks, leading to a massive round of inflation, a large chunk of which will not come down, when fuel prices come down? This may not have that simple an answer. But “pass the prices on” is also too simple of a solution, for a problem, that is way more complicated.

Comments

Comments are closed.

samir sardana Apr 17, 2022 08:30pm
The impact of Fuel prices on the supply chain,and thus,the inflation, especially on volumetric cargo, like agri food grains and veggies, is not the issue. THE ISSUE IS POLITICAL INSTABILITY,AND THEN ,THE CRASH IN THE PKR ,AND THE CREDIT DOWNGRADES. So the Oil prices can be absorbed by the refiners ,who can fund their losses,by bank loans,at concessional rates of interest,and gasoline curbs,can be announced ,on private 4 wheelers and govtt transportation and also,luxury power consumption - like film theatres etc.dindooohindoo A country like Pakistan cannot afford Political uncertainty,and Currency and credit risk at this juncture
thumb_up Recommended (0)
K Fareed Khan Apr 19, 2022 02:17am
Let us see what the finance genius Shehbaz does to control prices not just petrol and diesel. When do we hesr the cry Hskumat ne petrol Bomb gira Diya?
thumb_up Recommended (0)