Filling tanks and pockets: Pump owners anticipate PKR 3.95 petrol price hike

With fuel prices anticipated to rise, travel buses and apps like Uber may see a hike in their fare, too. As PSO (Pakistan state oil) drafts up price revisions, fuel suppliers prepare to celebrate. This is because the expected price increases will boost profit margins to PKR 9.22 for oil companies and PKR 10.04 for petrol dealers, respectively.

Reportedly, petrol prices are expected to be revised by PKR 3.95 per litre, kerosene oil by PKR 7.85 per litre, and LDO (light diesel oil) by PKR 8.33 per litre and the most significant of all, HSD (High-speed diesel) by PKR 10.

It is to be noted that fuel is a good that is inelastic in demand. Simply put, any hikes in fuel prices are not likely to cause a reduction in consumption as it is considered a necessity. Moreover, it is unlikely that vehicles are utilising multiple fuel sources (barring the age-old combination of Petrol-CNG), which makes it impossible to switch to a cheaper alternative.

It is this very principle that will allow business owners involved in the trade of fuel to benefit from the expected rise in prices.

However, these profits will come at the cost of the rest of the economy. People will still have to consume petrol and other such products regularly. The higher prices will result in a decline in the purchasing power of customers. This would spell bad news for non-fuel businesses, as a higher proportion of the consumer budget would be allocated towards the purchase of fuel, which would mean fewer revenues for non-fuel businesses.

This is likely to cause businesses to suffer as their customers will have less money to spend on their products.

Moreover, businesses are expected to suffer as transport costs of goods from warehouses to stores will rise. Businesses will either have to absorb these extra costs, resulting in a drop in profits, or this additional cost will have to be passed onto consumers in the form of higher prices, resulting in a rise in inflation.

Nevertheless, it’s not a win either for businesses or customers. However, it’s great news for businesses trading fuel.