Pakistan’s petroleum prices hike to fuel sky-high inflation

By Asif Shahzad and Gibran Naiyyar Peshimam

ISLAMABAD (Reuters) -Pakistan announced an increase in petrol and diesel prices on Tuesday to meet fiscal objectives laid down in a deal with the International Monetary Fund (IMF), adding further fuel to its sky-high inflation.

The country’s Consumer Price Index rose to 28.3% in July, year-on-year, the statistics bureau said in a statement on Tuesday, with prices up 3.5% in July from the previous month.

In June, the CPI rise was 29.4% year-on-year, coming off a record 38% in May.

In a recorded video statement, Finance Minister Ishaq Dar said gasoline, or petrol, prices would be raised by 19.95 Pakistani rupees to 272.95 Pakistani rupees ($0.952) per litre and diesel by 19.90 rupees to 273.40 rupees per litre, an increase of 7.8% for both fuels.

Fuel prices have increased sharply in global markets in the last 15 days, Dar said, adding his government had tried to minimise the hike. Benchmark Brent crude oil prices climbed 16% during July.

He said the country was not in a position to deviate from the IMF’s standby agreement, finalised on June 30 after eight months of negotiations over tough fiscal discipline measures.

“You all know the international commitments we have with the IMF regarding the petroleum levy,” he said, adding the increase could have been smaller without the pledges.

Islamabad has committed to a petroleum levy of up to 50 rupees a litre, alongside a string of painful measures, including raising extra revenues, increasing energy prices and a market-based exchange rate, which has already fuelled inflation.

Dar did not say what the levy was in his statement on Tuesday, but last month he said the government would try to keep it at about 45 rupees a litre.

The IMF has also called on Pakistan to maintain a tight monetary policy. The central bank on Monday, however, kept the policy rate steady at 22%, with its governor saying the lender’s requirement for tight policy didn’t necessarily mean raising the rate.

“We doubt this marks the end of the tightening cycle,” said Captial Economics, a global analysis group, in a statement issued Monday.

“With inflation likely to remain above target for some considerable time and the upside risks to prices building, we expect further rate hikes later this year,” it added.

The petroleum price increases and the sky-rocketing inflation will have political implications for Dar’s coalition government just months before a general election where it will see former prime minister Imran Khan’s party as the main opponent.

($1 = 286.7500 Pakistani rupees)

(Reporting by Asif Shahzad in Islamabad and Gibran Peshimam in Karachi; Editing by Kim Coghill, Jamie Freed, Christian Schmollinger and Sharon Singleton)

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