In line with a big drop in fuel prices in the last review, Caretaker Prime Minister Anwaar-ul-Haq Kakar on Monday said he had directed the concerned authorities to ensure that prices of essential commodities and services were reduced correspondingly.
In a post on X (formerly Twitter), the interim prime minister said he directed the authorities to activate a “strict price control mechanism”.
“I urge all honorable chief ministers to ensure that prices of essential commodities and services are reduced correspondingly.
“All efforts should be directed towards transferring the benefit of reduction in petroleum prices to the people of Pakistan. Strict implementation be ensured,” Kakar wrote.
The development came after the caretaker government announced a significant decrease in the petroleum prices.
On Sunday, the government announced a reduction of Rs40 per litre in the price of petrol and Rs15 per litre in that of high-speed diesel (HSD).
The new price for petrol and diesel are Rs283.38 and Rs303.18 per litre, respectively, till the next review due on October 31.
The finance ministry, in a press release, said the decreasing trend of petroleum prices in the international market and the appreciation of the rupee against the U.S. dollar as reasons for the cut in fuel prices.
Pakistan’s inflation rate rose to 31.4% year-on-year in September from 27.4% in August, primarily due to high fuel and energy prices.
The rupee hit all-time lows in August before recovering in September to become the best performing currency following a clampdown by authorities on unregulated foreign exchange trade.
Analysts, however, expect the fuel price cut to be short- lived and ineffective at taming inflation.
“The current cut in fuel prices has been led by a lower ex-refinery price, which is a function of international prices and the rupee parity. The sustainability of this cut is subject to future movements in these factors said Amreen Soorani, Head Of Research at JS Global Capital.
She added that the crackdown in illicit trade had been a key factor in the appreciating rupee against the dollar and that continued efforts on the same path would likely keep the rupee trend stable.
“Pakistan is a trade deficit country with limited dollar inflow avenues in its balance of payments. In the longer term, present information suggests the rupee would likely continue a depreciating trend, albeit, ongoing efforts may limit the quantum of depreciation,” she added.
Fahad Rauf, Head of Research at Ismail Iqbal Securities, pointed out the downward sticky nature of prices.
“When the fuel prices go up, the transportation cost and product prices also rise, but when the prices fall, the impact is not passed on to consumers to same extent,” Rauf added.
The conflict between Hamas and Israel poses one of the most significant geopolitical risks to oil markets since Russia’s invasion of Ukraine last year, analysts say.
“…we believe the oil price warrants a risk premium of USD5–10/bbl, due to the supply risk,” ANZ research said in a note on Monday.
However, oil futures fell on Monday on reports that the US had agreed a deal to ease sanctions on Venezuela, while investors continued to mull the potential impact of the escalating Israel-Hamas conflict on oil prices.
Brent futures were down $1.08, or 1.19%, at $89.81 a barrel at 1434 GMT. US West Texas Intermediate (WTI) crude fell by $1.07, or 1.22%, to $86.62 a barrel.
The US and Venezuelan governments reached a deal on Monday to ease US sanctions on Venezuela’s oil industry in return for a competitive, monitored presidential election in Venezuela next year, the Washington Post reported.