'Cut in prices of petroleum products will reduce inflation'

The government's decision to cut prices of petroleum products by an average 26 percent would help reduce inflation in the country, analysts said.

The government's cutting of the petroleum product prices by an average of 26 percent, or Rs22 a liter, is 70 percent of what the Oil and Gas Regulatory Authority (OGRA) had recommended.

The government has also slashed LPG prices by 13 percent.

"This 26 percent decline on average in petroleum products would have an estimated direct impact of 2.6 percent in the form of decline in the CPI in the coming months," Khurram Schehzad, a senior analyst, said. The CPI, currently standing at over 8.5 percent, should go down by 2.6 percent in the coming months, he said, adding that it would be good for the people and the economy.

The policy rate should also be cut, he said.

As per sensitivity at last petroleum prices, every Rs10/liter leads to revenue impact of about Rs15 billion a month for the government. So, passing on Rs22 a liter on average, there should be an estimated Rs34 billion a month impact on taxes, while the remaining should still be saved for relief efforts, he said.

Khurram Schehzad said that after this balancing act by the government, the leftover tax benefit can be best put to use by providing relief to both the common man as well as to the industries and businesses; the common man through social safety nets/programs, while some reduction in taxes, indirect and direct, should lead to support employment and overall economic activity.