Another possible petroleum price hike looms over August

Experts say price hikes can range from Rs12 to Rs22 per litre

KARACHI:

Pakistan may witness another round of petroleum price hikes ranging from Rs12 to Rs22 per litre for the last 15 days of August, as global commodity prices continue to rally. Head of Research at Arif Habib Limited, Tahir Abbas, shared insights with The Express Tribune, suggesting that the government could announce a larger price hike beyond the expected Rs12-22 per litre if international oil prices continue rising instead of stabilising.

In early August 2023, the government raised petrol and diesel prices by nearly Rs20 per litre each, bringing local prices to approximately Rs273 per litre. This move was necessitated by the International Monetary Fund (IMF) loan conditions, leaving the government with little choice but to pass on the burden of rising international commodity prices to local consumers instead of subsidising to ease the pressure on businesses and households during challenging times.

Abbas outlined that a potential diesel price increase of Rs20-22 per litre and a petrol price increase of Rs12-13 per litre for the latter half of August are being considered. The refined product prices have surged by $13 per barrel in the past 15 days to reach $111 per barrel, and petrol prices have risen by $7 per barrel to $97 per barrel during the same period.

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The impact of these price increases, both recent and potential, could significantly shape the inflation reading for August. If inflation surpasses expectations, the central bank may be compelled to increase its key policy rate in September.

Amidst these concerns, Khalid Tawab, a seasoned business leader from the Federal of Pakistan Chambers of Commerce and Industry (FPCCI), has urged the government to reconsider the decision to increase petroleum prices. He emphasises the need to review the petroleum development levy (PDL), currently charged at Rs50 per litre, and suggests adjusting it to provide petrol and diesel at more affordable prices for local consumers instead of transferring the increase in commodity prices directly to them.

Read more: Petrol, diesel become dearer by almost Rs20

Tawab’s concerns are echoed by the visible signs of economic slowdown, with the contraction in the large-scale manufacturing (LSM) sector and a decline in export earnings. These indicators highlight the potential consequences of increasing petroleum prices on businesses, possibly leading to further closures and economic challenges.

As the business community attempts to reach out to the outgoing government to address these issues, they face the reality of a limited timeframe, as the current parliamentary elected term of the government is set to conclude in the next ten days.