Significant impact after high petroleum prices.

• Author: Kazmi, S. Kamal Hayder

Byline: S. KAMAL HAYDER KAZMI

Significant impact after high petroleum prices

The Government of Pakistan dropped another petrol attack on the directives of the International Monetary Fund, which is likely to create rippling effects far from petrol stations while sending shockwaves to the crippling economy.

Some experts identified that it is feared that the massive fuel hike will end up being passed on to not only everyday Pakistani citizens whose wallets are feeling the strain already - but will also shut down further industries, and hit employment and households.

OPEC Basket Price

Date with Year###Value in $

1/2/2023###81.88

1/1/2023###81.62

1/12/2022###79.68

1/11/2022###89.73

1/10/2022###93.62

1/9/2022###95.32

1/8/2022###101.9

1/7/2022###108.55

1/6/2022###117.72

1/5/2022###113.87

1/4/2022###105.64

1/3/2022###113.48

1/2/2022###93.95

According to the statistics released by PBS (Pakistan Bureau of Statistics), the annual inflation in January 2023, measured through the Consumer Price Index (CPI) has jumped to a decade-high level of 27.6 percent on year on year (YoY) basis, as against to 24.5 percent in last month and 13 percent in January 2022. Statistics showed that the CPI of 27.55 percent, is the highest one after May 1975 when it posted 27.77 percent. The inflation has spiked to the highest level in 48 years at a time when thousands of containers of food products, raw materials and equipment are stuck in ports after the cash-strapped government curtailed imports.

Experts identified in their studies that the impact of fuel price shocks is to rely on crude oil prices, as data on domestic fuel prices are scarce, mainly at a high frequency. Since domestic fuel prices in various developing states are regulated, changes in contemporaneous crude oil prices may be a poor proxy of the domestic fuel price dynamic. For advanced economies, it is noted that the rationale is that with fuel prices completely liberalized, utilizing either crude oil prices or retail fuel prices should lead to the same consequences. But ignoring the other components of the retail fuel prices can lead to a significant bias. Indeed, refinery margins fluctuate; changes in taxes take place; weather-related events affect domestic fuel prices; and the structure and regulation of the petroleum market matter.

As a consequence, variations in crude oil prices can fail to mimic of domestic fuel prices. They also identified that households do not consume goods and services in the same...