LIVINGSTONE MARUFU IN HARARE / TATENDA CHIKARA IN CHIVI
Prices of basic goods will go through the roof after fuel prices soared this week, adding new uncertainty to economic recovery, captains of industry and economists have warned.
Zimbabwe’s pump price for petrol this week surged to US$1.63 a litre from US$1.59 while diesel is now at US$1.71 a litre, a 6.9% increase from US$1.60 a litre.
Surging fuel prices come on top of other pressures such as currency volatility and rising inflation. It comes in response to global increase in fuel following Russia’s invasion of Ukraine on February to carry a “special operation”.
Multiple economists and industrialists said this has serious implications to the already fragile economy.
“Currently, we have imported inflation and the volatile exchange rate and with these fuel price increases we are going to have another round of price hikes in shops,” Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times.
“This means that inflation and price hikes are going to be with us for some time.”
Matsheza suggested the government can absorb international market oil price increases by reducing taxes.
Experts say the spike in fuel prices will also result in a corresponding hike in the prices of other goods as it raises the cost of production and transportation of goods.
This also leaves consumers with less money to spend on other things.
The attack on Ukraine in February triggered a wave of international sanctions against Russia, which is the world’s second largest oil exporter.
It also means the threat of imported inflation will be elevated.
Economist Gift Mugano said the recent price hikes are the last nail to the ailing economy.“I can describe the recent fuel price hikes as giving poison to a patient on a death bed and this implies that the increased fuel prices have catalysed the total collapse of the economy,” Mugano said.
He said fuel price hike has knock on effects on all economic value chains hence this “will further quicken the already rampant inflation and volatile exchange rate resulting in increased prices of goods and services”.
Mugano said the government can cut high tax heads to cushion the market from international market oil price increases following the Russia-Ukraine war.
University of Zimbabwe lecturer and economist Moses Chundu said the fuel price hikes are not helping with achievements of inflation targets.
Chundu said while there is volatility on the international oil markets responding to supply chain disturbances related to the Russia-Ukraine war, the government would have to absorb the effects of the shock through manipulating blending ratios for petrol and sacrificing tax revenue from fuel, seeing it’s one of the most heavily taxed in the region.
“We all know the behaviour of our corporates. There is a lot of forward pricing and hedging and rent seeking behaviour that causes prices to overshoot and disproportionately adjust to any price shock on the market,” Chundu told Business Times.
“When that happens in an environment where wages are sticky, the result is to create more poor people. If not careful, soon we will have a country of poor people because the last time I remember almost half of us were considered poor and the environment has deteriorated since.”
Chundu added: “Poor people don’t drive aggregate demand which is key for any sustainable growth. We need real growth that people can relate with, not numbers driven by mining sector performance whose impact does not easily cascade to the ordinary citizen.”
A Chivi growth point resident feared a hike in prices in response to an increase in the fuel price.
“Life is going to be harder especially for us who do not have better jobs as prices of basic goods are going to shoot up ,”
Another Chivi resident pleaded with the government to look into the prices issue as they were now out of reach of many.
“Right now, the exchange rate on parallel market is now ZW$380, this is what I think is making prices go up every day,” the resident said.
The Consumer Council of Zimbabwe Masvingo regional officer, Ndumiso Mgutshini, said retailers were going to pass on the cost to consumers.
“The shooting up of fuel price will make life harder for consumers since fuel is used in the production and transportation of goods and services.
“We will see a new spate of price increases across all sectors of the economy in response to fuel price increases. We urge the government to consider gradual increase of prices as this would pain consumers,” Mgutshini said.
