Increase in oil prices in Pakistan and its impact on consumer buying behavior

Pakistan is a nation that faces numerous challenges, and now another challenge that looms large for the country (Pakistan) is: rising oil prices. Oil is an essential resource for any country’s economy, and in Pakistan, the increase in oil prices has caused significant issues for policymakers and businesses etc. But, Given the current trend, what impact will this have on consumer behavior?According to a study by the University of Michigan, a $1 increase in gasoline prices reduces consumer spending by about $1.2 billion per month.This article will provide an in-depth analysis of the impact of rising oil prices on consumer buying behavior in Pakistan. Through research and analysis we will explore how rising oil prices affect consumer behavior and what steps businesses and policymakers can take to mitigate the impact on the economy and consumers.

According to a news article published by The Express Tribune on January 12, 2021, Pakistan’s oil imports rose to 4.7 million tons in 2020, and it spent approximately $3.3 billion on oil imports during the same year”. According to the another data from 2021, Pakistan’s import of Crude Petroleum amounted to $3.53 billion. The major sources of the imports were Saudi Arabia with $1.88 billion, followed by the United Arab Emirates with $1.36 billion, Kuwait with $262 million, Malaysia with $34.6 million, and Netherlands with $557  thousand”.

Research studies conducted in Pakistan suggest that the increase in oil prices has a negative impact on consumer behavior. According to a study conducted by the Pakistan Institute of Development Economics (PIDE), the rise in oil prices leads to a decline in consumer demand for non-essential items. The study found that there is a significant negative relationship between oil prices and consumer demand for non-essential goods such as clothing, recreation, and personal care products. With a volatile market and increasing demand for fuel, households and businesses alike are struggling to make ends meet. The country’s economy has been hit particularly hard by rising petroleum costs, leading to substantial changes in consumer buying behavior. Higher fuel costs make it more expensive to buy everyday essentials like food and other household items which can increase inflation levels within an economy. This inflationary pressure affects everyone, especially the poor, who are most vulnerable to price hikes. As a result, consumers are being forced to make tough choices about their spending habits, such as cutting back on discretionary purchases or switching to cheaper alternatives. According to data from the Pakistan Bureau of Statistics, the inflation rate in Pakistan increased from 8.4% in August 2021 to 9.1% in September 2021. This increase was primarily driven by rising oil prices and had a significant impact on the purchasing power of households. For businesses, the rise in oil prices leads to higher input costs, which can lead to lower profit margins and ultimately, lower growth. Policymakers are also under pressure to manage the impact of rising oil prices on the economy and consumers.

A survey conducted by Gallup Pakistan in 2020 found that 57% of respondents had decreased their spending on non-essential goods and services due to rising oil prices, while 43% had decreased their spending on essential goods and services, such as food and healthcare. And clearly it is true as we can see that people are being forced to cut back wherever they can until they find a new way to manage their finances that still allows them some freedom when it comes time for purchase decisions. For households with limited incomes, every extra rupee spent on energy bills can represent a significant financial burden. As such, it’s no surprise that people have started changing their shopping habits in order to conserve energy usage and save money where possible. Many households have turned away from normal luxuries such as eating out at restaurants or taking vacations, instead opting for cheaper options like home cooked meals which require far less money spent on petrol related expenses. Many individuals have begun investing more heavily into renewable sources of electricity like solar power or wind farms instead of sticking solely to traditional fossil fuels. This shift comes as an effective way for citizens throughout Pakistan attempting reduce their long-term energy costs while also providing some economic stability for future generations through sustainable practices including conservation efforts and investments towards alternative energies over time.

In addition to these immediate changes, there has also been an increase in longer term behaviors associated with this trend including saving small amounts weekly or monthly into savings accounts which ensure security during difficult times; elite community shifting to expensive electric cars and the middle and upper middle class towards hybrid cars to lessen the fuel expense, focusing investments towards initiatives using renewable sources energy whenever possible ; managing transport budget efficiently, cash benefits purposes & various other ways aim coping increased oil cost. Similarly, when transportation costs become too high then businesses will see their margins squeezed further meaning there is less investment back into encouraging local production or job creation opportunities for citizens. The knock- on effect will leave many feeling desperate as incomes struggle to keep up with the spiralling price hikes. In the long-term, the effects of increasing oil prices can have catastrophic implications for the overall economy of Pakistan. The reliance on oil has also caused the country to become reliant on importing oil from other countries, resulting in a drain on the country’s foreign reserves. This has meant that there have been budget cuts in certain areas, including health and education, leading to an overall decrease in standards of living. Furthermore, the increased cost of food has caused a rise in food insecurity, resulting in malnourishment.

Furthermore, the manufacturing sector is another area that is heavily impacted by rising oil prices. Many industries, such as textiles and agriculture, are dependent on transportation and are therefore affected by increases in oil prices. This can lead to increased costs of production and decreased profitability, which can impact the country’s overall economic growth. Additionally, businesses may be forced to increase their prices to offset the increased costs of production, which can further exacerbate the impact on consumer behavior.

If the current situation is left unchecked, it could lead to a significant deterioration in the Pakistan economy, with serious implications for social stability. Therefore, the government should take action to stabilize prices and protect the interests of consumers. It is essential that economic policies focus not only on stimulating growth from foreign investments but also tackle this worrying trend at home by reducing taxes on imports where possible and looking at ways of incentivizing domestic alternatives through government subsidies or tax breaks for local manufacturers tapping into renewable resources such as solar power rather than relying solely upon dwindling finite fossil fuels reserves. In addition new technologies should be encouraged – hydrogen fuel cell technology is becoming increasingly viable way forward particularly among commercial fleets while electric vehicle adoption would greatly help individuals lower their monthly transport expenditure substantially too if made affordable enough.

Anain Fatima
Anain Fatima
My name is Anain Fatima and I am currently a second-semester student pursuing a Bachelor's degree in Economics at the National Defence University in Islamabad, Pakistan.As an economics student, I have a keen interest in exploring the various factors that shape the global economy and their impact on developing countries like Pakistan.