EDITORIAL: Petrol price was slashed by 12 rupees per litre and high speed diesel’s 30 rupees per litre while petroleum levy (PL) was kept at the maximum level of 50 rupees per litre as allowed by the legislature on these two major levy earners; however, the levy was massively reduced on kerosene oil (from 24.65 rupees per litre to 19 paisa per litre) and light diesel oil (at 7.18 rupees per litre), the two items that provide a very small percentage of revenue for the government under PL.

Naively, Finance Minister Ishaq Dar exhorted transporters to reduce fares as a consequence of the reduction in prices of petrol and high speed diesel — an exhortation that is unlikely to be taken into consideration by the transporters not only because the worldwide trend is for prices to exhibit a severe sticky downward trend but also because domestic inflation is so high that the transporters would welcome a rise in their disposable income that would improve their capacity to meet the weekly rise in the prices of essentials.

Nonetheless, the question is how much would the impact of this price decline be on the sensitive price index, which rose by 48.02 percent year on year for the week ending 11 May 2023? Petrol prices rose by 87.81 percent in the week ending 11 May over the week ending 4 May 2023; however its weightage in the percentage of the lowest income was 1.467 for petrol super with combined income impact at 6.7 and 0.0114 for high speed diesel for lowest income and 0.08 for combined.

This, however, must be seen in the context of the entire group that has been assigned a total weightage of 38.6 for lowest income group and 42.4 for combined in which case petrol super and high speed diesel appear to be rather small contributors and certainly far less than wheat at 6, and milk at 17.5.

There is no doubt that a decline in the prices of petrol and high speed diesel would have an immediate positive impact on disposable income of the low to middle income earners — income groups hard-pressed to sustain their consumption patterns with the consumer price index of 36.4 percent in April 2023, up from 35.4 percent in March, a sensitive price index of 31.73 percent July-April 2023 against 16.93 percent in the comparable period of the year before and core inflation (non-food and non-energy) at 19.5 percent in April against 9.1 percent in April of last year.

And if one adds the element of the rupee depreciation applicable on imports with petrol and products as well as cooking oil accounting for well over a quarter of all imports one would be forced to conclude that this downward revision in prices made possible by an international price decline is not likely to be seen as any significant attempt by the government to contain inflation by the general public.

If the government’s objective is to reduce inflationary pressures it would have to undertake economic measures that are specifically designed to reduce the general price rise rather than relying entirely on passing on a reduction in the international price of import items after maximising tariffs on these items.

One way out would be to desist from raising the budget deficit through borrowing irresponsibly from domestic banks, at a rate that is raising the debt servicing component of current expenditure which in turn is crowding out private sector borrowing with severe negative implications on tax revenue collections — factors that raise concerns amongst lender and donors alike in general and the International Monetary Fund (IMF) in particular, prompting them to issue a statement warning the government to implement all policy framework agreements and secure sufficient funding from partners to ensure that external and internal financing requirements can be met.

Copyright Business Recorder, 2023


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Abdullah May 18, 2023 11:34am
Ever thought of eating less cooking oil?.Its the biggest reason of disease in pakistan.Oil increases inflamation in body slowly and as a result we end up with lots of diseases which could have been avoided ofnwe reduced cooking oil intake. We all know we eat oil excessively.Cut it down people and live a better life.we cant stop eating it but we can surely cut it down.
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KU May 18, 2023 08:51pm
It will have no impact on inflation nor is it taken seriously by anyone. No business or agriculture venture can afford a volatile oil price that changes from one breath to another. These imbeciles need to understand the importance of industry as well as agriculture's revival and exports. No one or any country is going to bale us out, especially when they know we have a team of professional corrupt people at the helm.
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