OPINION: Rising energy costs, other challenges

Pakistan’s inflation debate is typically framed around headline CPI movements and short-term adjustments. However, a longer-term structural view reveals a more persistent challenge: the steady escalation of energy costs and their cascading impact on food prices, household consumption patterns, and workforce productivity.

This issue has moved beyond affordability. It now directly affects economic efficiency and export competitiveness.

Electricity and gas are universal inputs. Increases in their tariffs raise the cost of agricultural processing, transport, cold storage, manufacturing, and retail activity. These increases are then transmitted into food prices and basic household expenses. Unlike discretionary spending, food and utilities leave households with little room to adjust.

Under sustained pressure, households rarely reduce food quantity immediately. Instead, they compromise on quality — lowering intake of protein, dairy, fruits, and other nutrient-dense foods. These adjustments are gradual and largely invisible in macro indicators, but their economic consequences accumulate steadily over time.

A long-term index-based comparison helps illustrate the scale of this shift.

Cost Pressure Index (2005 = 100)

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Year   Essential   Electricity   Gas Cost   Household
       Food Cost   Cost          Index     Purchasing
       Index       Index                    Capacity*
=====================================================
2005   100         100           100              100
2010   145         160           150              130
2015   185         230           210              165
2020   265         360           390              215
2025   410         520           600              260
=====================================================
*Indicative index reflecting households’ ability to 
absorb rising essential costs; not a wage or salary 
benchmark.
=====================================================

The direction of change is clear. Over two decades, essential food costs have risen more than fourfold, while electricity and gas costs have increased even more sharply. Energy pricing, in particular, has accelerated at a pace that amplifies inflation across the entire economy.

This imbalance carries direct productivity implications.

Nutrition is closely linked to physical stamina, cognitive focus, and adaptability — attributes required across the workforce, from shop-floor labour to supervisory and managerial roles. Sustained dietary compromise gradually weakens these attributes, resulting in lower output per worker, higher fatigue, and reduced efficiency.

At the enterprise level, the same energy cost pressures are already embedded in production.

High electricity and gas tariffs raise unit costs directly, while elevated financing costs and regulatory compliance further compress margins. The combined effect is a steady increase in per-unit production cost — precisely the condition that erodes competitiveness in international markets.

It is important to frame this issue correctly. This is not a wage-setting debate, nor can it be resolved by administratively shifting costs onto enterprises. Export-oriented industries operate in highly competitive global markets, where cost disadvantages quickly translate into lost orders and shrinking market share.

The underlying challenge is structural. Energy pricing in Pakistan has increasingly been used as a fiscal adjustment mechanism rather than treated as economic infrastructure. Volatile tariff revisions, limited predictability, and repeated pass-throughs have created a cost environment that undermines both household stability and industrial planning.

International experience suggests that competitive economies adopt a different approach.

Energy pricing is stabilized, made predictable over multi-year horizons, and aligned with productivity and export objectives. In such systems, energy policy functions as an extension of industrial and trade policy.

For Pakistan, the policy implication is straightforward. Without addressing energy pricing distortions, efforts to control food inflation, protect productivity, or enhance export competitiveness will remain constrained.

Conversely, even modest stabilization in energy costs can generate multiplier effects — easing pressure on food prices, preserving workforce efficiency, and improving industrial cost structures.

Pakistan’s inflation challenge today is therefore not simply about rising prices. It is about how energy-led cost escalation transmits through the economy — from household consumption to factory-floor efficiency.

If left unaddressed, this dynamic will continue to weaken productivity, raise production costs, and undermine export competitiveness.

Stabilizing energy pricing is not a welfare demand or a labour intervention. It is a strategic economic requirement for safeguarding productive capacity and sustaining long-term growth.

Copyright Business Recorder, 2025