Petrol price relief

Huge cuts in fuel prices will bring some welcome relief to motorists and other commuters. The Rs40 drop in petrol prices and Rs15 drop in diesel prices comes on the tail of smaller price cuts two weeks ago, going against the trend of several consecutive price hikes separated by the occasional one-off cut. Still, the combined cuts only amount to Rs48 on petrol and Rs26 on diesel, which is only a fraction of the Rs58 hike in petrol and Rs56 hike in diesel prices between August 15 and September 15. The difference in the cuts can partially be explained by the fact that the petroleum levy — part of the IMF bailout — is currently Rs10 lower on diesel than on petrol.

It is also worth noting that even folks unfamiliar with the domestic energy market could have predicted price cuts, because international oil prices have been sliding for several weeks, while the rupee is steadily gaining strength against the dollar. Oil prices have declined by about 3% in the last month, while the rupee’s value has appreciated by about 10%. On the other hand, the price cuts only amount to about 14% and 8% on diesel. This makes the cuts less of a ‘relief’ measure, and rather just business as usual, since they are in line with the actual price changes.

However, any cuts in fuel prices have an impact well beyond the petrol pump. Because of the knock-on impact on everything from power production costs to goods transport, fuel price increases can create inflation in almost every sector of the economy, while cuts — in an ideal situation — can bring noticeable declines in these prices. If nothing else, with inflation still hovering over 31% in September, it is believed that the price cuts could bring the October rate down to the 20s. While the caretaker government does have a much narrower mandate than an elected one, with at least another quarter-year at the help, the caretakers need to figure out better ways to soften the burden on the common man than hoping for beneficial external events.

Published in The Express Tribune, October 17^th, 2023.

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