Harare – The Zimbabwe Energy Regulatory Authority (ZERA) has increased the price of fuel, for the 3rd time in six months.
Intensifying the fuel price increase is the liberalization of the exchange rate which has resulted in broader exchange rate-pegged price revisions.
In the latest price revisions by ZERA, petrol and diesel prices have increased by $0.29 and $0.18 per litre respectively in what will have a huge effect on the cost of living.
This means petrol will now cost $5.26 per litre up from $4.97, while diesel has risen to $5.07 from $4.89 per litre.
In January government adjusted the price of fuel by 150% in a move it said was designed to remove market distortions, thus ensuring market equilibrium.
In March, government went on to partially liberalise the importation of fuel to some select players notably in the real sector, in a bid to cushion the erratic supplies.
The move had the side effects of exposing producers and ultimately consumers as the cost of direct importation would result in increased costs of production across a number of goods.
Again in May, following the announcement by the RBZ that it was discontinuing the subsidization of fuel imports, ZERA released new fuel pump prices.
To arrive at the price, ZERA adjusted for what it assumed as the average interbank market exchange rate of 4.6.
The challenge going forward will be how to constantly adjust fuel market prices given the volatile rate. Market player’s behaviour has shown that there is serious tendency towards risk aversion in the economy.
In the fuel market it will increasingly become difficult for ZERA to dictate prices going forward, due to exchange rate fluctuations on the interbank. Sooner players will begin to price their fuel at random prices and these market distortions may exert more pressure on prices.
This is evidenced by the recent developments which saw some fuel dealers unilaterally increasing the price of fuel to around $7 per litre, but were later forced to reverse the pump price hike by Energy Minister Fortune Chasi.
Equity Axis news
Raynold Mhotseka is a Journalism and Media Studies student at the University of Zimbabwe. He serves as a news writer at financial research firm, Equity Axis where he is currently on attachment.