'Fuel price hike to hit inflation outlook'.

Byline: Shahid Iqbal

KARACHI -- The financial markets are now bracing for a disruptive impact on inflation that is likely to come from the recent large upward revision in fuel prices.

'The increase in petroleum prices is massive and will be disruptive for the outlook on inflation,' said BMA Capital ManaAAgement Executive Director Saad Hashmey.

The government on June 26 increased the prices of all petroleum products by up to Rs26 per litre. Rate of petrol was raised by Rs25.58 to Rs100.1 and diesel to Rs101, from Rs80 per litre.

When asked about the impact of the fuel price hike on inflation outlook, the State Bank of Pakistan would only say that price level projections are made at the time of the Monetary Policy Committee meeting.

'We typically announce inflation projections or any revision in it at the time of Monetary Policy.'

The SBP has been cutting the key policy rate at a historic rate, slashing it by a cumulative 625 basis points since mid-March to bring it down to seven per cent in an extraordinary, unscheduled, monetary policy announcement on June 25, the day before the fuel price hike was notified.

In a statement accompanying that annoAuAncement, the SBP said 'the moderation of underlying inflation has continued' since the rate cuts began, adding '[r]ecent SPI data also suggests continued moderation in overall price pressures in June.'

For months now, as it slashed rates, the SBP has been citing falling oil prices as an important factor in moderating the pace of inflation. In mid May, when it announced a 100bps cut in the interest rate, the central bank cited a sharp reduction in fuel rate as the main reason behind a further easing in consumer price index.

'[T]he government has significantly reduced petrol and diesel prices by 30-40pc in response to the continued fall in global oil prices, which has improved the outlook for inflation,' the monetary policy of May 15 said. In...