ISLAMABAD:

Inflation rose to a near two-year high of 10.9% in April, driven by global supply shocks and the government’s decision to fully pass on higher fuel costs to consumers, in addition to raising petroleum levy, sending energy, transport and food prices soaring.

The Pakistan Bureau of Statistics reported on Friday that for the first time consumer inflation climbed to double digits since July 2024, when the government of Prime Minister Shehbaz Sharif had started increasing taxes under the International Monetary Fund programme.

The adverse impact of the rising prices was felt across urban and rural areas and on almost all products that are directly or indirectly affected by the increase in the prices of the petroleum products, showed the inflation bulletin.

April inflation reading of 10.9% was also the highest since July 2024, which was also slightly more than the independent and official forecast for the month. The ministry of finance had given a maximum 9% inflation forecast.

The global fuel prices have been on the rise since the United States and Israel attacked Iran on February 28th. The Brent crude is about 55% more expensive than before the start of the war.

But despite the challenging situation, the government not only continued recovering the global prices from the domestic consumers but also increased taxes on petrol. This has triggered an inflationary cycle in the country.

The central bank is now trying to control by increasing the interest rates despite the fact that inflation is on the rise because of the actions of the government and the global price shock.

According to the PBS, the motor fuels, having only 2.9% weight in the CPI basket, became expensive by 40% in April over the same period of the last year. The consumer item that has hurt the people the most during the past two months has only 2.9% weight in the basket.

Diesel, whose prices the PBS reported were higher by 93% in April, has a 5.5% weight in the wholesale price index. The government on Friday reintroduced Rs28.69 per liter levy on diesel. After the adjustment, the diesel prices were increased to Rs400 per liter on Friday.

The government reduced the levy rate on petrol by Rs4 per liter but it was still charging Rs103.5 per liter levy. This was far higher than the agreed Rs80 per liter levy limit and contributed to unduly high prices of petrol in Pakistan.

The national data collecting agency reported that electricity prices were 33% higher than a year ago whereas the liquefied hydrocarbon inflation rate rose 63% in April.

Overall, there was a price spike in energy and food items last month.

Pace of food inflation accelerated last month to 6.9% in urban areas while it jumped to 7.3% in rural areas. Energy group prices rose to 13.8% in urban areas –the highest since October 2024. The energy-based inflation in rural areas also increased to 13.6% in villages and towns –the highest since July 2024.

The non-food and non-energy inflation indicator also rose last month to 8% in urban areas and 8.5% in rural areas, according to the PBS.

For the current fiscal year, the government had set the inflation target at 7.5%. During the first eight months of this fiscal year, the average inflation remained at 6.2%, which was well below the target range. But the government expects that the target might be missed because of constant increase in prices of petroleum products.

To offset the impact of future price hikes on the poor segments, the IMF has asked the government to increase the cash handouts being distributed among the 10 million Benazir Income Support Programme beneficiaries. The number of beneficiaries would also be increased by 200,000 by June this year to 10.2 million.

The details showed that food prices also increased significantly last month, mainly due to increase in transport fares. Tomatoes became expensive by 75%, followed by a 42% increase in the rates of onions and nearly 40% in wheat.

Wheat flour inflation rate jumped over 30% previous month, reported the PBS. Transport services became expensive by 38% despite the government’s decision to partially subsidize the fares through direct subsidy. Overall, the transport group inflation rate rose to 30% whereas housing, water, electricity and gas group inflation rate was higher by 17% last month compared to the same period of the last year.