Government backpedals on its decision to provide relief, raises oil prices precipitously

June 26, 2020 (MLN):  While chairing a meeting to review steps taken by the government to control prices of essential items in Islamabad on June 16 2020, Prime Minister Imran Khan said that the reduction in petrol and diesel prices by the government for the month of June was aimed at providing all possible relief to the people.

However that sentiment seemed short lived when, on Friday, the government revised and increased the prices of various petroleum products by 26.59 percent to 66.09 percent per liter effective from June 26, 2020.

According to a press release issued by the Finance Ministry, Petrol would be now sold at Rs100.10 per liter against its old prices of Rs74.52.

The price of High Speed Diesel have been increased by Rs21.31 per liter by raising it from Rs80.15 to Rs101.46.

The price of Superior Kerosene Oil have been increased from Rs35.56 per liter to Rs59.06 per liter, a growth of Rs23.50 per liter whereas the prices of Light Diesel Oil have been raised from Rs38.14 per liter to Rs55.98 per liter, an increase of Rs17.84 per liter.

Rising oil price trend in the global market was cited as the reason for this price revision.

Historically, prices are revised from the first of every month however, this sudden change might cause problems for the government.

According to Economist Muzammil Aslam “The biggest problem of PTI Government is communication. Now POL prices increase, ahead of deadline and no communication & justification from government. This deficit needs to close otherwise, government popularity will be at stake”

Ironically, the increase in price of petroleum products is announced just as the inflation data released by Pakistan Bureau of Statistics (PBS) shows the yearly SPI numbers have steadily ticked up to 10.21 percent on June 25, compared to 9.89 percent on June 18, 2020 and 9.17 percent on June 04, 2020.

Furthermore, the SBP cited amid improved inflation outlook in its decision to cut the policy rate by 100 basis points, noting “While supply shocks could create some volatility in inflation, the MPC felt that these are likely to be transitory given weak domestic demand, such that monetary policy should generally look past them. Given the absence of demand-side pressures, average inflation could fall below the previously announced range of 7-9 percent for next fiscal year”.

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