Pakistan’s June inflation surges to its highest in over a decade
A vendor waits for customers at his makeshift stall at the Empress Market in Karachi. Reuters
In May, the consumer price index was up 13.8 per cent on the year. The month-on-month rise in June was 6.3 per cent.
The spike comes as fuel prices have risen about 90 per cent since end-May after the government scrapped costly fuel subsidies in a bid to cut its surging fiscal deficit and secure resumption of an IMF bailout programme.
Transport saw the biggest rise, with its index rising 62.2 per cent in June on the year.
The price index for food items, which make up about a third of the CPI basket, rose 25.9 per cent.
Pakistan has been struggling with high inflation for the last few months.
The CPI index rose 12.1 per cent for financial year 2021-22, which ended in June, compared with 8.9 per cent in the last financial year.
Despite rising global oil prices, subsidies for fuel and power were adopted in March 2022 by the government of previous Prime Minister Imran Khan, as he faced mounting discontent over his handling of the economy and rising inflation.
He was ousted in April, and the new government began reversing the costly subsidy, which it brought on par with international prices late last month.
Prices of fuel were hiked further on Thursday, with the cash-strapped government imposing a petroleum levy in its battle to reduce the fiscal deficit.
The levy, which officials expect to rise even further, was part of fiscal consolidation measures agreed with the IMF to resume the bailout programme.
Adding to Pakistan’s inflation woes has been the weakening of the rupee against the dollar.
Meanwhile the Pakistan’s monthly fuel oil imports are set to hit a four-year high in June, Refinitiv data showed, as the country struggles to buy liquefied natural gas (LNG) for power generation amid a heatwave that is driving demand.
The resurgence in residue fuel demand at power plants underscores the energy crisis faced by the South Asian country and slows its efforts to switch to cleaner fuel.
Pakistan had cut fuel oil imports since the second half of 2018 as LNG prices were low, but it had to at times switch back to oil since July 2021 because of sky-high LNG prices.
The country’s fuel oil imports could climb to about 700,000 tonnes this month, after hitting 630,000 tonnes in May, according to Refinitiv estimates. Imports last peaked at 680,000 tonnes in May 2018 and 741,000 tonnes in June 2017.
A spokesman for Pakistan’s energy ministry cited global prices as the reason for the surge in fuel oil imports.
The trend is set to continue in July too, as Pakistan State Oil (PSO) received offers from Coral Energy to supply two high sulphur fuel oil (HSFO) cargoes and one low sulphur fuel oil (LSFO) cargo for second-half July delivery, industry sources said.
PSO had sought five cargoes in the tender, according to its website.
“Import data indicates that thermal power generating companies in Pakistan made the initial switch from gas to fuel oil late last year and the price dynamic provides an ongoing incentive to max out fuel oil purchases over LNG,” said Timothy France, a Mena senior oil analyst at Refinitiv.
Asia LNG spot prices jumped last week, tracking European gas prices, as an extended shutdown at a US export plant prompted buying by Japan and South Korea.
Pakistan LNG, in its second attempt to buy four LNG cargoes for July delivery, received only a single supply bid for one cargo from QatarEnergy on Thursday.
Pakistan LNG, however, did not pick up the supply bid due to the cost.
The country, which is facing a severe energy crisis, has been in a conservation mode to reduce consumption and stave off blackouts.
“Weather conditions in Pakistan appear highly supportive of demand. Cooling demand typically remains high until mid-September, which implies that imports could remain elevated in June, July and August,” France added.
While fuel oil-based power generation was relatively steady year-on-year, it climbed 15 per cent in May from the previous month, data from Topline Research showed.
