Inflation in Pakistan Accelerates Due to Energy Price Hike

Weekly Inflation Rises to 14-Week High Due to Increase in Petrol and LPG Prices

Sensitive Price Indicator Reaches 14-Week High of 2.83%:

The government's decision to increase the prices of petrol and liquified petroleum gas (LPG) in Pakistan has caused the sensitive price indicator (SPI) inflation to reach a 14-week high of 2.83% on a week-on-week basis during the seven-day period ending February 2, 2023. On a year-on-year basis, the number reached a 20-week high of 34.49%, with expectations of reaching 40% in the next few weeks following another hike in petroleum rates and taxes.

Major Contributors to the SPI Increase:

Food items:

  • Garlic (17.07%)
  • Pulse gram (7.10%)
  • Bananas (4.75%)
  • Chicken (4.37%)
  • Pulse mash (3.93%)
  • Pulse masoor (3.91%)
  • Mustard oil (3.47%)
  • Eggs (3.42%)
  • Pulse moong (2.33%)
  • Sugar (2.32%)
  • Vegetable ghee 1kg (2.13%)
  • Broken basmati rice (2.12%)

Non-food items:

  • LPG (17.61%)
  • Petrol (16.22%)
  • Diesel (15.30%)
According to data from the Pakistan Bureau of Statistics (PBS), the rise in SPI was due to the increase in prices of various food and non-food items. The only commodity to register a decline in price was potatoes, down 0.37% per kilogram.

Hardship for Low-Income Households:

The rise in inflation, particularly in food and energy prices, has a disproportionate impact on low-income households. This is because these households spend a larger portion of their budget on essential items like food, fuel, and electricity, leaving them with less disposable income for other expenses.

A maid in Karachi’s People's Colony, Zareena, shared her struggle with the rising prices. She stated that she needs 1kg of fine wheat flour every day for her five-member family, which she now has to buy at a price of Rs120/kg. She also mentioned that the short rice she usually buys is now being sold at Rs190/kg. On top of that, with gas load-shedding, Zareena has to purchase LPG which is now priced at Rs300/kg.

Zareena also shared her difficulty in affording healthcare expenses, as she can no longer afford the doctor's fee or the diagnostic fee needed for ultrasound and blood work. This is a clear indication of the immense impact that rising inflation is having on low-income households in Pakistan.

YoY and WoW Impact on Different Spending Groups:

For the groups spending up to Rs17,732; Rs17,733-22,888; Rs22,889-29,517; Rs29,518-44,175; and above Rs44,175, the week-on-week SPI increased by 1.71, 1.99, 2.17, 2.47, and 3.30%, respectively. On a year-on-year basis, for these groups, SPI recorded an increase of 31.33%, 32.26%, 34.54%, 36.04%, and 35.47%, respectively.
This data shows that on a week-on-week basis, SPI had the highest impact on those spending more than Rs44,175, while the year-on-year impact was faced the most by those with spending capacities between Rs29,518 and Rs44,175.
Composition of the SPI Basket
The PBS attributes different weightages to the commodities in the SPI basket. For the group with the lowest spending capacity, the commodities with the highest weights include:

  • Milk (17.5449%)
  • Electricity (8.3627%)
  • Wheat flour (6.1372%)
  • Sugar (5.1148%)
  • Firewood (5.0183%)
  • Long cloth (4.2221%)
  • Vegetable ghee (3.2833%)
All these commodities, except electricity and long cloth, have seen a rise in prices.

Expert Opinion: 

Fahad Rauf, Head of Research at Ismail Iqbal Securities, explained that the increase in SPI was primarily due to the rise in petrol and LPG prices. He also mentioned that inflationary pressures are expected to intensify in the coming weeks, as the Pakistani government is expected to make further adjustments to unlock the IMF program.

Conclusion:

In conclusion, the recent decision to increase petrol and LPG prices has led to a significant increase in inflation in Pakistan. The rise in SPI has affected low-income households, who are struggling to purchase essential food items and pay for other expenses. With expectations that inflationary pressures will continue to intensify in the coming weeks, it remains to be seen how the Pakistani government will address these challenges and support its citizens.