Sunday, May 19, 2024

Inflation fears as retail fuel prices go up

The retail fuel prices went up yesterday as government was forced to make the adjustments owing to increasing demand as global economy recovers from the worst recession that traces its origins from the U.S housing bubble.

Energy officials said a liter of both leaded and lead replacement petrol will be 55 thebe more expensive, diesel went up by 45 thebe a liter while paraffin cost 40 thebe more a liter. The adjustments were made Tuesday, February 1st.

The ministry of Minerals, Energy and Water Resources said on Monday the green shoot in the global economy is pushing demand up, but with restricted supply and threats of geo political instability might further influence price movements.

“The price adjustment is caused by increases in crude oil prices internationally,” the ministry headed by Ponatshego Kedikilwe said.

“Factors driving this increase are rising demand because of economic recovery, the cold weather in Europe as well as the weak dollar,” it added.

International brent crude oil prices averaged US$85.28 (about P578.170) in November 2010 and subsequently rising to US$91.31 (about P619) in December 2010.

The last time prices were adjusted was in August last year when the crude oil prices were still low at US$77 (about P 522) per barrel. By then, petrol, diesel and paraffin were reduced by 13, 25 and 37 thebe per liter, respectively.

Since that period, the crude oil prices went up by 18 percent.

“The looming unstable situation in the Middle East is likely to adversely affect production and, therefore, cause shortages which would affect prices,”, the ministry added.

In a bid to avoid hurting motorists and consumers of other petroleum products, government will adjust prices by small margins. This will avoid a situation where the adjustment is steep.
The global economy has shown some signs of recovery with emerging markets growing faster than developed markets.

Despite the recovery, the global economy is still fragile with momentum fading, rather than building as a result of the diminishing impact of fiscal stimulus.

The increase in pump prices is expected to fuel inflation and push the numbers outside the Bank of Botswana target band for the period up to the end of the first quarter of the year.

Producers are also likely to pass the cost to consumers therefore pushing the inflation numbers up.
“The implication of that would translate into an increase in pump prices, which will mean that retailers and manufacturers┬áwill have no choice but increase prices,” head of Capital Assets Management, Leutlwetse Tumelo, said.

Investec had forecast that for the first few months of the year is still expected to remain above the 3-6 percent target band, with CPI for January expected to be 7.6 percent.

“Inflation will continue to be driven by rising commodity prices (food and fuel prices), strong domestic demand as well as the continued stronger rand, as about 80 percent of our imports are from South Africa,” Carol-Jean Harward, an Investment Analyst at Investec, said.


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