Fuel Price Surge and Tariff Adjustments to Heighten Inflation, Says Ministry of Finance

The Ministry of Finance has raised concerns about the looming inflationary challenges that Pakistan is set to face in the near future. These concerns stem from a combination of factors, including the recent surge in fuel prices in September and the upward revision of energy tariffs.

According to the Monthly Update & Outlook for September 2023, released by the Economic Adviser’s Wing of the Finance Division, there has been a positive development in international food prices. The report highlights that global food prices have been on a decline since August 2023.

Factors Driving Inflationary Pressures in Pakistan According to Ministry of Finance

The Food and Agriculture Organization’s (FAO) price index, which monitors the prices of the most widely traded food commodities worldwide, registered an average of 121.4 points in August 2023, compared to 124.0 in the previous month.

This decline is significant, marking the lowest level since March 2021 and reflecting a 24 percent drop from the all-time high in March 2022, following Russia’s invasion of Ukraine. Although most food commodities have experienced decreases, the report notes that these reductions have been offset by increases in the prices of rice and sugar.

On the domestic front, the government’s stringent actions against illegal foreign exchange dealers and commodity hoarders have contributed to stabilizing the exchange rate. This has provided some relief from imported inflation and has helped alleviate the pressures on commodity prices.

The State Bank of Pakistan has also maintained its policy rate at the previous level, aiming to anchor inflationary expectations. While the double-digit base effect has had a mitigating impact on September’s inflation figures, the significant rise in fuel prices during September 2023 is expected to partially offset these effects.

Moreover, the recent upward adjustments in energy tariffs are anticipated to exacerbate inflationary pressures in the coming months. These tariff revisions are projected to result in increased transportation costs, affecting essential goods and services. Consequently, inflation is predicted to remain elevated in the coming month, with an expected range of 29 to 31 percent for September 2023.

These economic factors collectively emphasize the need for prudent financial management and measures to mitigate the impact of inflation on consumers and businesses in Pakistan.