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ISLAMABAD: The inflation in the country is likely to increase by one per cent from the current level of 28.3per cent to 29.3 per cent owing to an increase in petrol and high-speed diesel (HSD) prices, continued Pak rupee depreciation against the US dollar, as well as, an increase in natural gas and electricity tariffs.

This was the crux of a discussion with eminent economist Ashfaque Hasan Khan, Dean and Professor National University of Sciences and Technology (NUST) and Professor Dr Atiqur Rehman, Director Kashmir Institute of Economics.

Dr Khan said the increase in petrol and HSD prices is likely to take up inflation by one per cent.

The Pakistan Bureau of Statistics (PBS) has computed consumer price index (CPI) inflation at 28.3per cent on a year-on-year basis in July 2023 from 24.9per cent in July 2022, which is likely to go up as an increase in petrol and HSD prices will be reflected in the next CPI to be released in the first week of September 2023.

Within the past three weeks, petrol price has witnessed an increase of Rs35 per litre and high-speed diesel oil (HSD) by Rs40 per litre, officially liquefied petroleum gas (LPG) by Rs43 per kg, and domestic gas price and electricity tariff also witnessed an increase.

According to Dr Atiq, the government’s failure to enforce the official prices in the market is also playing a key role in escalating prices. Moreover, Pakistani rupee exchange rate with the US dollar and other currencies will also play a role in escalating the inflation and seemingly, as there is no immediate prospect of appreciation in rupee value against other currencies; therefore, inflation will keep on the high side, Dr Atiq said.

Depreciation in rupee value results in increasing the price of imported food items such as pulses and cooking oils, he said, adding that the high interest rate is also a reason behind high inflation. However, the impact of a reduction in fuel, electricity and natural gas prices is not usually fully passed on to the end-consumers, while an increase is immediately passed on to them. Therefore, in the future significant reduction in inflation is not possible.

However, in the market, neither LPG distributors nor retailers are selling the commodity at the official price as the Oil and Gas Regulatory Authority (OGRA) has fixed the LPG price at Rs3,165 per 15kg domestic cylinder while in the retail market of Islamabad, it is being sold at Rs3,700, reflecting a difference of Rs535 per cylinder.

Similarly, Sugar Advisory Board (SAB) and Pakistan Sugar Mills Association have agreed to the sale of sugar in the retail market at Rs99 per kg or Rs4,950 per 50kg bag for the ongoing year; however, in the retail market currently, sugar is being sold at Rs160 per kg while in wholesale market it is available at Rs7,600 per 50kg bag.

The increase in fuel costs, electricity, and domestic gas has a direct and indirect implication on inflation as transportation cost is hiked by an increase in fuel cost which always led to an escalation in the prices of all items being transported from one place to another place. Electricity and gas prices increase also result in an escalation in the prices of everything as the business community has to pay additional charges for gas and electricity which they pass on to the end consumers.

Moreover, increase in natural gas tariff, HSD, and electricity also result in increasing the cost of production of agricultural products which is also passed on to the end consumers.

Copyright Business Recorder, 2023

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