By Jawad Ahmed ISLAMABAD, Mar 01 (INP-WealthPK): Rising inflation surprised economic forecasters the most in the first month of 2022. Price hikes accelerated during the preceding year, resulting in two-year high inflation in Pakistan. The Consumer Price Index (CPI) climbed by 13% in January 2022. The transportation sector is a major contributor to the significant price rise, with prices jumping about 23% in the first month of 2022 and at an unprecedented rate over the previous year. Transportation expenditures, despite ranking fifth in the consumer basket behind food, housing, clothes, and hoteling, contributed significantly to the total price growth in 2021, and the growing trajectory continued in the first month of 2022, WealthPK reported. The cost of transportation eventually affects the pricing of other consumer products in the CPI basket. Since oil is a key input to transportation and other industries in the economy, it is generally thought to be directly correlated to inflation. If input price rises, the cost of the final product will rise as well. International oil prices are significantly contributing to the country's rising inflation. According to the UN Conference on Trade and Development (UNCTAD) report 2021, following the outbreak of a global pandemic, the imbalance between supply and demand attributed to the historical drop in global crude oil prices. Subsequently, the Organization of Petroleum Exporting Countries (OPEC) members agreed in April 2020 to cut daily oil supply by 10 million barrels.

Transportation CPI points in Pakistan

  By the end of 2020, the prices of commodities continued to increase due to rise in oil prices in the international market. As the economies worldwide recover from the effects of the Covid-19 pandemic, demand for petroleum surged significantly, resulting in a large price increase. Finally, the strong recovery in fuel prices also increased transportation costs. By the end of January 2022, the price of a barrel had risen to over $90.

Source: TRANDING ECONOMICS

In Pakistan, road transportation is the major source for the transportation of food and other essential items to the market. According to Oil and Gas Regulatory Authority (OGRA) annual report, the transportation sector's usage of petroleum products climbed to 81% during FY19-20. Further increases in oil prices will balloon the country's twin deficits (fiscal and current account) and worsen financial constraints. Depreciation of currency is one of the causes of rising inflation, as oil accounts for more than 20% of Pakistan's overall import bill. Since the demand for petroleum products is inelastic, any price rise will have little influence on consumption; thus, the government's viable option is to shift the burden on to the customers to reduce the government's financial strain. According to a report by the Pakistan Bureau of Statistics (PBS) for January 2022, the shift in price incidence to the end consumers has resulted in a fresh wave of inflation. Other options for the government to reduce indirect impact of transportation inflation includes improving public transit and transferring freight traffic from roads to railways to reduce reliance on oil consumption. But long-term initiatives are needed to achieve these targets.