KARACHI: The impact of the proposed gas price hike of up to 235 per cent on monthly headline inflation will be between 50 and 100 basis points.

Speaking to Dawn on Wednesday, Topline Securities Deputy Director of Research Umair Naseer said the month-on-month reading of the consumer price index (CPI) would increase up to one percentage point because of the revised gas prices if all other variables remained constant.

The Economic Coordination Committee (ECC) of the Cabinet has approved a rate increase ranging between 8pc and 235pc for domestic and industrial consumers of gas. After the formal approval by the federal cabinet, the Oil and Gas Regulatory Authority will notify the increase in gas prices.

The Pakistan Bureau of Statistics uses the weighted average gas prices for consumers to calculate the impact of any price revision on the CPI. With a 1pc weight in the CPI basket, headline inflation can go up by 50-100 basis points, Mr Naseer said.

The CPI surged 21.3pc on a year-on-year basis in June, the fastest pace since December 2008 when the global economy was in the middle of the second-worst financial crisis of the last 100 years. The CPI increased 6.3pc on a month-on-month basis, another multi-decade high.

The hike in gas rates will generate additional revenue ranging between Rs400 billion and Rs600bn for the two gas utility companies, said Mr Naseer in a research note to investors. It’ll also help contain the build-up in the gas circular debt, which has piled up to Rs1.5 trillion or roughly 2pc of GDP.

The weighted average selling price of gas in Pakistan is between $3 and $3.50 per million British thermal unit (mmBtu). However, the cost of gas is estimated to be $3.6-$4 per mmBtu. The differential is contributing to the cascade of unpaid subsidies on the balance sheets of gas companies.

“After the proposed increase, the weighted average gas price is estimated to increase by 46pc to $4.50 to $5 per mmBtu,” he said.

“The IMF has also been a key proponent of reducing the circular debt by increasing gas tariffs… We believe this, along with the rationalisation of the power tariff, will take Pakistan closer to the revival of the IMF programme,” he added.

Published in Dawn, July 14th, 2022