Fuel Price Hike To Nudge Inflation Up

Staff Writer | Monday November 13, 2017 15:31

Retail pump prices for petrol, diesel and illuminating paraffin were increased by 20 thebe per litre across board, effective November 1, 2017.

Investment analyst at Kgori Capital, Kwabena Antwi said the increase, which is approximately three percent, will have a negative effect on household consumption and slightly nudge inflation because consumers will have to pay more per litre for fuel. vHowever, he said if there are no more fuel price increments, then the increase will be in line with the general inflation in Botswana,” he said.

“Fuel prices were last changed almost two years ago in February 2016. At that time petrol prices were reduced by 15 thebe, diesel by 45 thebe and illuminating paraffin by 55 thebe,” Antwi said.

He said the price of the international oil benchmark, Brent Crude, was around $35 per barrel, adding that since then the price of crude oil has been volatile but has steadily increased to its current level around $60 per barrel, which is about 70% surge in price. “During this time however fuel prices in Botswana have remained unchanged,” he said.

Therefore, he noted that the decision to increase fuel pump has been overdue and that it will offer some relief to government, through the national petroleum fund, in terms of subsidy payments to fuel retailers.

Economic analyst at Motswedi Securities, Garry Juma, concurs that the fuel price hike was imminent given that fuel prices have been steadily rising on the international markets from levels just below $50 per barrel early this year to the current levels above $60 per barrel. 

He said the cost of transportation will go up and that this will squeeze disposable incomes further.“Businesses that rely on fuel either for transportation or operations will see an increase in cost which they may be forced to pass the increases to customers,” said Juma.

He also noted that the increase will have an effect on the November inflation reading, but said inflation will remain within the three to six percent Bank of Botswana (BoB) objective range.

According to Juma, the national petroleum fund cushions Batswana from price volatility of fuel prices on the international market.

Without the fund, he said there will be volatility of fuel prices on the local market, which affects planning and the growth of the economy.