Fuel prices to create cost pressure

When compared to year ago, petrol and diesel pump prices will still be 3.1% and 4.9% lower respectively.

03 March 2021 | Economics

Belts are to be tightened and remember to factor in fuel consumption when decisions are made. Simonis Storm (SS)

PHILLEPUS UUSIKU

Despite the big increase in fuel prices for the past two months, the impact on inflation should be relatively small.

According to Cirrus Capital (CC), the transport line in the Namibia Consumer Price Index (NCPI) basket has been deflationary for eight of the last ten months, including the last four months.

Despite the 80 cents per litre (c/l) increase, fuel prices will still be lower than a year ago. Petrol pump prices will still be 3.1% lower, and diesel 4.9% lower.

The personal transport equipment sub-item which captures the fuel price in the transport line in the NCPI basket contributes about 9.0% to the overall inflation basket.

This means that the personal transport sub-item will be less deflationary than before, and thus will act as less of a drag on inflation, CC pointed out.

Cost pressure, outlook

Fuel is an important input for many goods and services not just for farming and manufacturing, but also for the importation of goods from South Africa and the rest of the world.

Simonis Storm (SS) is expecting higher inflation to come through as cost pressure increases and transferred up the chain to the end consumer.

The already cash-strapped consumer will find it more difficult to make ends meet as they will have to fork out more money for transportation. Thus, increased pressure given evaporating disposable income and the poorest being the hardest hit, SS pointed out.

“We are expecting the global oil price per barrel to rise, on the back of increased demand, following the opening up of economies after the Covid-19 induced lockdowns, deteriorating exchange rate and under-recoveries by the Ministry of Mines and Energy, SS said.

According to Namibia Statistics Agency (NSA) NCPI, the transport category weight 14.28 points out of 100. This implies that on average, for every N$ 100 that consumers have in their wallet, N$ 14.28 is likely to be spend on transport.

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