Analysts warn power pricing overhaul may push inflation higher

Analysts say the federal government’s proposed overhaul of electricity pricing could add inflationary pressure and shift the burden of subsidy reductions—linked to Pakistan’s IMF-backed reforms—onto middle-income households, while lowering costs for industries.

According to analysts, the plan would end a structure in which businesses effectively subsidised household electricity bills. Optimus Capital Management estimated the change could raise inflation by about 1.1 percentage points over a 12-month period.

The proposed adjustments are expected to reduce industrial power prices by roughly 13% to 15% and eliminate subsidies worth about Rs102 billion, analysts said. They also estimated that middle-class households could face power bills rising by around 50% under the new framework.

The warning comes against the backdrop of Pakistan’s inflation surge in 2023, when price growth climbed close to 40%, driven by currency weakness, higher fuel costs and reform-related price increases. Although inflation later eased, analysts cautioned that the power-price changes could reignite upward pressure on consumer prices.

Energy specialists said household purchasing power has already declined significantly in recent years, and additional fixed charges could compound financial strain. Industrial groups, meanwhile, have argued that high electricity prices have undermined export competitiveness, particularly in sectors such as textiles and manufacturing.