Amid reports of inflation rising up to nine percent in Pakistan, government representatives have sought to blame the phenomenal increase in prices on conditions beyond their control. Even though Prime Minister Imran Khan has admitted that inflation has made life tough for the common man, he has also claimed that prices of petroleum products in Pakistan are among the lowest in the world. This, he claims, without making a similar comparison between per capita income for various regions in the world.

This rising inflation has affected all sectors of the economy, mainly the industrial sector – as production costs increase due to the sector being heavily dependent on imported raw material and energy. This has made many industrialists close down their units and pump their money in real estate or stock trading. They can make easy money in these sectors but this may not be the situation in near future because of the tough FATF conditions.

Prices have also seen a considerable increase due to devaluation of currency, increased money supply, Covid-19, rising energy prices, trade deficit and faulty policies and regulations of the current government. It is worth noting that the production of local petroleum products has increased by 18 per cent during 2020-2021 but this has not been enough to ease the inflationary pressure. The fact that some oil producing countries are selling these products on deferred payments to Pakistan has also not resulted in adequate relief to the common man. A sudden rise in the price of petroleum products was seen in the month of September and then again in October, ultimately triggering vicious inflation in almost every sector.

Increase in prices of electricity, produced from imported furnace oil and coal, and of staple foods like wheat are some of the other reasons behind this sudden rise in inflation that has particularly hit the salaried and pension-dependent classes – people who have to survive on a fixed income.

One suggestion has been to provide comprehensive relief in power and gas prices by reviewing national, provincial and local taxes levied on oil, gas, electricity and petroleum products. This week’s special report looks at the impact of a sustained increase in prices on the overall health of the economy.