Fuel price monster gentle with consumers

Constant fuel prices allow households to continue consumption spending in other sectors of the economy at the same pace.

04 August 2021 | Economics

We believe this decision is favourable to both household and business consumers, especially taking into account that petrol prices increased in South Africa by 91 cents. Simonis Storm

PHILLEPUS UUSIKU

The Ministry of Mines and Energy has announced that both petrol and diesel prices will remain unchanged countrywide for month of August 2021.

For Walvis Bay which is the port of entry, the price of petrol will remain at N$13.55 cents per litre and the diesel price will be kept at N$13.58 cents per litre. Last month, fuel prices increased by 40 cents per litre.

Given this development, Simonis Storm (SS) notes that household’s do not have to alter any other consumption decisions in order to better afford their monthly petrol and diesel expenses. Constant fuel prices allow households to continue consumption spending in other sectors of the economy at the same pace. Other sectors of the economy therefore benefit as fuel expenses do not consume a larger portion of households’ budgets.

“We believe this decision is favourable to both household and business consumers, especially taking into account that petrol prices increased in South Africa by 91 cents,” SS said.

Transport is the third largest category in the Namibian Consumer Price Index (NCPI) basket. This means, it’s the third largest item in an average household’s budget. With the latest inflation numbers for Namibia, the transport category contributed 32.3% to the total annual change in inflation for the month of June, SS added.

Currency

According to Andreas Simon, spokesperson of the ministry, the local currency depreciated slightly against the United Sates (US) dollar, from an average of N$13.93 in June to an average of N$14.40 in July 2021. Owing to the aforementioned factors, during the month of July, under recoveries were recorded.

An under-recovery of 91 .236 cents per litre was recorded on petrol while 50ppm diesel recorded an under-recovery of 66.896 cents per litre.

For the ministry to continue to soften the burden on the consumers and at the same time ensure the sustainability of the National Energy Fund (NEF), it has decided to keep the fuel pump prices for August 2021, unchanged, Simon pointed.

International prices of refined products have been fluctuating significantly during the period under review. The average price of refined petrol increased from US$80 in June to US$85 in July, whilst the average price of refined diesel increased slightly from US$78 in June to US$79 in July, he pointed out.

Outlook

Looking forward, oil prices look volatile as rising Covid-19 cases are posing a threat to oil demand recovery at a time when OPEC+ has announced to boost output with an extra 400 000 barrels per day from August through December. Still, forecasts indicate that demand is likely to overtake supply for the rest of the year, Simon said.

The ease of lockdown related restrictions worldwide, higher factory orders and an increase in the number of Covid-19 vaccinations, are all expected to drive a demand led increase in oil prices, SS added.

“We do expect higher fuel prices locally for the remainder of the year. Higher expected oil prices cannot extensively be absorbed by wholesalers going forward. We do expect higher oil prices to pass through to end consumers. We forecast an unleaded petrol price of N$13.95 by the end of this year, SS said.

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