The caretaker government of Pakistan announced a substantial hike in petrol prices by Rs13.55 per litre. The new price, effective for the forthcoming fortnight, now stands at Rs272.89 per litre, a jump from the previous rate of Rs259.34. This comes in line with the rise in international prices of Oil which rose from $67.96 (WTI) currently trading at $76.16.

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XTIUSD_2024-02-01_08-25-47

HIGH-SPEED DIESEL ALSO SEES A RISE

Alongside petrol, the price of high-speed diesel (HSD) witnessed an increment of Rs2.75, bringing it to Rs278.96 per litre.

STATUS QUO FOR OTHER FUELS

The official notification did not indicate any changes in the prices of light-diesel oil (LDO) and kerosene oil, maintaining their current rates.

BEHIND THE PRICE HIKE: MARKET DYNAMICS AND EXPECTATIONS

EXPECTATIONS SURPASSED

The hike in petrol prices surpassed earlier expectations. Initially, it was anticipated that the prices for petrol and HSD would increase by Rs5-9 per litre, considering the global market scenario and import premiums. However, the actual increase was notably higher (Rs13.55).

GOVERNMENT’S FISCAL STRATEGIES AND INFLATION CONCERNS

PETROLEUM LEVY AT ITS PEAK

The government has already imposed a Rs60 per litre petroleum levy on both petrol and HSD, the highest permissible limit as per the law. This move aligns with the budget target of collecting Rs869 billion as a petroleum levy during the current fiscal year, as part of Pakistan’s ongoing commitments to the International Monetary Fund (IMF). 

Morever, petroleum and electricity prices are key drivers to the high rate of CPI-based inflation, which was recorded at 29.7% in December 2023. The recent fuel price hikes are likely to further influence inflationary trends in the country. Similarly, the SBP also maintained its policy rate for the fifth time countering inflation.

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