Business Recorder
The two-week ceasefire has, for now, taken some heat out of global energy markets. Prices are likely to remain relatively contained in the immediate term, at least until negotiations offer a clearer path to a more durable resolution. That said, the outlook remains highly uncertain. The fate of the Strait of Hormuz is still too early to call, even in the near term, and a return to full normalcy before the expiry of the two-week window appears unlikely. Against this backdrop, attention has quickly shifted back to the State Bank of Pakistan and its next monetary policy decision. Recent movements in the treasury market suggest that expectations are already adjusting. Yields on government paper have edged up, indicating that the market is pricing in a more cautious, if not tighter, policy stance. The ceasefire complicates the picture. Whether the central bank looks through the temporary easing of global prices or responds to underlying domestic pressures remains to be seen. March CPI, while elevated, did not come as a major surprise. The wholesale side, however, is beginning to tell a more consequential story. The recent uptick in the wholesale price index points to building pressures that could shape near-term CPI outcomes. Unlike CPI, the WPI basket is far more exposed to energy. Transport-related fuels carry significantly higher combined weight, making WPI far more sensitive to fuel price movements. High-speed diesel, petrol, kerosene oil, and furnace oil together account for roughly 11 percent of the WPI basket, compared to 2.9 percent and 2.5 percent in the urban and rural CPI baskets, respectively. Diesel alone carries a weight of 5.5 percent in WPI, followed by furnace oil at 3.3 percent and petrol at 1.6 percent. This composition implies that even if fuel prices ease from current levels over the remainder of the month, the year-on-year impact will remain substantial. On current trajectories, fuel could contribute as much as 6 to 7 percentage points to WPI inflation on its own, pushing the index to its highest level in nearly two years. Equally important is the speed of transmission. When wholesale inflation is driven by fuel, the pass-through to retail prices tends to be swift and, in many cases, near immediate. Transport costs adjust quickly, feeding into distribution and retail margins across a wide range of goods and services. In that sense, the current WPI print is effectively an early CPI print in disguise, capturing cost pressures that are already in the pipeline and likely to surface in retail inflation with minimal lag. There is, however, an anomaly within the WPI data that warrants attention. Despite a reported reduction of 18 to 20 percent in electricity tariffs for industrial consumers in February, the electricity sub-index in WPI shows little evidence of this adjustment. The series appears to have largely ignored the tariff cut, which is difficult to reconcile given that the change was neither marginal nor selectively applied. This raises questions around data capture and methodology and may require closer scrutiny from the Pakistan Bureau of Statistics to correct any inconsistencies. Taken together, the emerging picture is one where upstream price pressureis building even as headline CPI remains partially insulated. The divergence is unlikely to persist. With fuel costs still elevated on a year-on-year basis and pass-through effects gathering pace, the risks of the inflation outlook remain firmly tilted to the upside. For policymakers, the challenge is not just the current print, but the pipeline pressures that are already in motion.
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