Thanks to the unprecedented economic growth during the past eight years, and the unprecedented amount of money in Pakistani reserves, Pakistan may be able to cope with this for a while.
With promises of price cuts by the PPP and PML (N) for food and energy, how will Pakistan cope?
Oil hits $102 for the first time
The price of oil has hit a record high for the second day running, touching $102.08 a barrel for US sweet crude.
However, the figure is still surpassed in inflation-adjusted terms by the peak of $102.53 reached in 1980, the International Energy Agency says.
The oil price surge is supported by traders switching their cash out of shares and currencies and into commodities, traders say.
Fears that producers’ cartel Opec will cut supply have also been blamed.
“[Opec] appears reluctant to heed requests from Western leaders to add more barrels to the market in order to soften prices,” said Robert Laughlin at MF Global. London Brent crude was trading near $100 a barrel after surpassing that level on Tuesday.
Trend buying?
Other analysts say a bigger catalyst in the latest oil surge is continued uncertainty in the global economic outlook, which is causing turmoil in currency and equity markets.
The euro hit a high of $1.50 on Tuesday after traders bet that the Federal Reserve will have to cut rates below 3% to prevent the US economy from sinking into a recession.
US interest rate cuts generally lower the value of the dollar as traders move to other investments with a higher rate of return.
Investors are pumping cash into commodities and metals, which look a safer bet because of continued high demand in Asia to feed the region’s industrial boom.
Gold reached a historic high at $957.60 on continued power supply problems in South Africa, while aluminium and copper prices also rose.
“The US dollar weakened against the euro and the economic data also indicated that inflation in the US rose in January,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
“Commodities are generally considered a hedge against inflation. We are therefore seeing these strong prices that have really little to do with oil market fundamentals.” A raft of gloomy US economic data out on Tuesday included lower consumer confidence and higher home foreclosures.