Pakistan Bureau of Statistics (PBS) recent data shows that inflation has increased to 5.2 percent in June as compared to 4.2 percent in May due to a raise in food and non-food items, including energy. Those PML-N loyalists who may be tempted to lay the blame on the caretaker set-up for the rise in inflationary pressures it is necessary to consider two factors. First, the Abbasi-led administration opted to defer the decision to set the domestic price of petroleum and products (requiring an adjustment on tax on different oil products) as routinely advised by Oil and Gas Regulatory Authority (Ogra) for effectivity on the 1st day of next month till 7 June, while it had no compunction raising the Oil Marketing Companies’ and dealers’ margins for June. Food and non-food prices generally rise due to the rise in transport costs as a direct consequence of a rise in the price of petroleum and products. And second, the outcome of the caretaker government’s decision notified on 12 June, to pass on 50 percent of the suggested Ogra price, implying that it decided to absorb part of the rise in international prices by reducing taxes on these products, led to higher inflationary pressures given that a significant portion of electricity generation uses petroleum and products as a major input.

Inflation is projected at 6 percent in the current fiscal year and there are international as well as domestic factors that indicate that Pakistan’s rate of inflation may well be higher than what was projected by the Abbasi administration in the budget presented on 27 April 2018. International factors include the recent decision by the Trump administration to penalize those countries/companies that continue to purchase oil from Iran. European countries are seeking an exemption; additionally, there is no indication that Trump is going to back down from his decision to impose tariffs on all those countries with which the US has a trade deficit in spite of retaliatory tariffs imposed by the European Union, China, Canada, Mexico and India on US imports by arguing that all these countries need America more than America needs them. Trump has tweeted that the Saudi king has agreed to increase oil output as a measure to keep oil prices low yet there has been no confirmation from the Saudis on this count. Thus if oil shortage as a consequence of sanctions on Iran erupts without the Saudi kingdom making up the lost supply then the price of oil will rise and have a negative impact on Pakistan’s inflation rate as well as on other countries.

Domestic factors likely to fuel inflation in the coming months are manifold: (i) the inordinately heavy dependence of successive Pakistani administrations on taxing oil and products sector – to the tune of 40 to 50 billion rupees per month from sales tax and another 25 billion rupees per month under petroleum levy (calculated on the basis that the budget for 2018-19 envisaged annual collection from petroleum levy of 300 billion rupees) which raises prices across the board; (ii) the depreciating rupee, allowed by the caretakers to reach its market value, is raising the cost of all imported items; (iii) manufacturing and farm output is facing challenges due to higher costs of production (including energy and transport costs) relative to neighbouring countries; and with thousands of kilometers of porous borders smuggling is a menace that has not been appropriately dealt with; and (iv) the rising current account deficit and dwindling foreign exchange reserves are putting further pressure on the rupee – elements that may compel the next elected government to go on yet another International Monetary Fund programme which with its accompanying standard normal conditions would further raise inflationary pressures.

One would have hoped that given this dire economic scenario, the three national political parties would begin work on a set of policy measures designed to deal with these issues, however, it appears that all three parties are focused on the usual election strategy: presenting a wish list rather than a set of policy measures able to deal with the crisis.