Govt Expects Inflation to Intensify in Coming Months Due to Higher Petrol, Electricity Prices

The Ministry of Finance expects the increase in fuel prices in September coupled with the upward adjustment in energy tariffs to intensify inflationary pressures in the coming months.

In its Monthly Update & Outlook for September 2023, the Economic Adviser’s Wing of the Finance Division said that international food prices have been experiencing a decline since August 2023.

According to the report, the Food and Agriculture Organization’s (FAO) price index, which tracks the most globally traded food commodities, averaged 121.4 points in August 2023 against 124.0 for the previous month. The August figure was the lowest since March 2021 and also 24 percent below an all-time high in March 2022, in the wake of Russia’s invasion of Ukraine. The decline in most of the food commodities is offsetting the increases in rice and sugar.

The report said that domestically, the government’s stern administrative action against the unlawful foreign exchange dealers and hoarders in commodity markets is stabilizing the exchange rate, providing a respite to the imported inflation and easing out commodity prices.

It said that the State Bank of Pakistan has also maintained the policy rate to the previous level given anchored inflationary expectations. The impact of the double-digit base effect is a relief to the September inflation; however, its impact seems to be minimized owing to the major increase in fuel price in September 2023.

Together with this, the upward adjustment in energy tariffs is further likely to intensify inflationary pressures in the coming months as these price adjustments are expected to place an additional burden on transportation costs, essential items, and services. In view of the above, inflation is anticipated to remain high in the coming month. In September 2023, it is expected to be around 29 to 31 percent.

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