Sunday, February 5, 2023

How surging fuel prices will not just hurt you at the pump

Soaring fuel prices will not only hurt motorists at the pump, but could also harm the consumer basket, markets analysts have said.

Already domestic economists are expecting Botswana’s administered costs to rise through the year 2018, which will further cripple the households.

The First National Bank of Botswana (FNBB)’s market strategist (Treasury), Moatlhodi Sebabole says the rise in administered prices such as utilities tariffs and the recent hike in fuel prices will affect local consumers negatively.

Following the hike in tariffs of electricity and water in early April 2018, already the Consumer Price Index (CPI) has shown a sharp upward movement.

The data as compiled by Statistics Botswana- shows that the annual domestic inflation rate in April 2018 was 3.4 percent, registering an increase of 0.6 of a percentage point on the March 2018 rate of 2.8 percent. With the recent fuel price increases, the May inflation rate is most likely to increase.

“Higher inflation simply means Batswana will have to incur higher costs in attaining the same goods and services as before. The recent increase in prices has been on the essentials of transport as well food and water and electricity tariffs. Given that these already make up almost 70 percent of the spending, it means that households will be under further financial strains ÔÇô especially that there remains limited opportunities for employment growth and wages grow below the real inflation averages”, says Sebabole.

Garry Juma, a financial analyst at Motswedi Securities also shares Sebabole’s sentiments that the recent fuel price increment, will add further to the May inflation reading.

“But because inflation is currently lower, we expect inflation to largely remain within the 3-6 percent bank of Botswana target”.

Juma says the transport cost will go up and business that have fuel as one of their largest cost component will see their cost going up and will in turn pass it on in the form of an increase in prices of their goods and services.

The April CPI showed that, the transport group index went up from 104.9 to 107.4, recording a rise of 2.3 percent between the two months. This was largely due to an increase in the constituent section index of Transport Services (11.3 percent). The rise in Transport Services section index was mainly due to an increase in Minibus and Taxis Fares from P3.50 to P4.00 and P3.90 to P5.00, respectively, while long distance bus fare (bitumen road) increased from P0.21 to P0.26 per kilometer. These changes were effected on the 1st April 2018.

The housing, water, electricity, gas & other fuels index group moved from 106.7 to 108.3, registering a rise of 1.5 percent between March and April. This was attributed to an increase in the constituent section index of electricity gas & other fuels, which rose by 7.0 percent. The rise in the electricity, gas & other fuels section index was largely due to the hike in the electricity tariffs by 10 percent for domestic consumers who consumed less than 200 kWh as well as those who consumed more than 200 kWh, which were effected on the 1st April 2018.

This implications do not spare the business community, and according to Sebabole, the businesses will also experience higher operational costs as a result, and might adjust their prices up to cushion off against these higher costs ÔÇô meaning the consumers will carry the price burden.


Read this week's paper