Daily prices fixed

The government moves into crisis mode

It seemed like a move out of an old playbook. The government shortened the period for its oil fixes from a week to a day, and announced a substantial hike in the price. This was exactly what happened when the government moved from a fortnightly determination of the price to a weekly. The government should realise that it has no place to go, because it cannot very well announce even half day prices, let alone h

ourly, or some smaller internal. However, this should be seen as a signal that the government expects the Strait of Hormuz crisis to last longer, and it refuses to be responsible for the lag between the oil price rise and the pump price. The pump owners’ association had already expressed opposition to the idea, but now it has been implemented. Pump owners have already been exercised  by the switch from fortnightly pricing to weekly, and now the switch to daily is likely to increase their inventory management problems.

The possibility of a prolonged Strait closure is being seen by people who know about it. After all, Pakistan was at the centre of the negotiations leading up to the Memorandum of Understanding signed in June, and at the centre of efforts to get Iran and the USA to de-escalate after the resumption of the US bombing. It would thus know what were the direction in which events in the Strait, and thus the price of oil,were moving. Going  by the recent past, the Pakistani consumer can expect greater shocks down the line, as not only oil price shocks are passed on immediately, but the government tries to see if it can use petrol and diesel to somehow meet the promises it has made to the IMF, The IMF is likely to be as unrelenting as before in its insistence that targets be met. And it is a distinct possibility that the government will rely on the petroleum levy to prop up revenue, as it has been doing.

The daily pricing brings the Pakistani consumer into line with the American or European, which does not lessen the pain of either. The government’s expectation seems to be of daily price rises, not of declines. THat means the government knows better than most that its sputtering economic recovery is more or less over. It is has to ensure that what seems to be a coming stagflation is contained as recession,rather trhan becoming a full-blown depression.