Pakistan's interim government raised fuel prices about 10 percent Saturday, a decision expected to spark public anger at a time when food prices were also rising.
The hike by the Pakistan Oil and Gas Regulatory Authority came after world oil prices touched record highs. Light, sweet crude for April delivery on the New York Mercantile Exchange jumped to a new trading record of US$103.05 a barrel on Friday before slipping back to US$102.02.
The authority said the surge in world oil prices forced it to raise domestic prices. It was the first hike in state prices in about 13 months.
Qaiser Bengali, an independent economist, said the increase in state prices was inevitable but that the government should have increased them gradually.
"This caused a sudden shock to the people in general and to the economy in particular," he said.
The price of gas rose 9 percent to 58.70 rupees (US$0.94; euro0.62) per liter (0.26 gallons). Diesel rose almost 11 percent to 36 rupees (US$0.58; euro0.39) per liter (0.26 gallons).
Bengali said the Pakistan government spent about 150 billion rupees (US$2.4 billion; euro1.6 billion) on fuel subsidies over the last 13 months, despite the fact it faces a budget deficit. The situation could fuel inflation, he said.
The price hike by the interim government saved the incoming government, led by slain former Prime Minister Benazir Bhutto's Pakistan People's Party, from having to raise prices, Bengali said. The PPP is expected to form a government within the next two weeks.
The fuel price hike comes amid rising food prices, which rose about 14 percent in Pakistan in 2007. In Peshawar, the main city in the country's northwest, the market price of a 20-kilo (45-pound) bag of flour has jumped from about US$4.30 (euro2.85) to US$8 (euro5.3) in recent months.