Fuel prices soar as economy shows no signs of recovery

  • Petrol increased by 4.8% to ZWL$18.28, diesel increased by 9% to ZWL$19.55
  • The increase in fuel prices trigger an increase in the price of other goods and services thus further eroding household earnings
  • Government’s projection of single digit inflation by end of the first quarter highly unconvincing

Harare – Government on Friday 17 January 2020 announced an increase in petrol and diesel prices for the first time since November 25, 2019 as the economy shows no signs of recovery from prior year’s meltdown characterised by high inflation, foreign currency shortages and depressed consumer demand.

In an announcement, the Zimbabwe Energy Regulatory Authority (ZERA) said petrol would cost ZWL$18.28, an increase of 4.8% from $17.44 while diesel has been increased by 9% to $19.55 from $17.90.

The latest price increase had been expected. Zimbabwe’s economy has remained largely depressed and confidence in government is waning. Government’s failure to deal with issues such as high inflation, power cuts and fuel shortages is painting a gloomy picture for the current year’s economic outlook, such that government’s own positive economic outlook are becoming a mere political rhetoric.

Since the surprise January 2019 fuel increase which sparked widespread protest, petrol has gone up by 452% to date whilst diesel has recorded a cumulative increase of 529%. The biggest jump was the January 2019 increase of about 150%.

Recently, global oil prices spiked after a top Iranian military commander was murdered in an air strike ordered by USA president Donald trump. Analysts warned of an expected upward movement in global petroleum prices.

Meanwhile, the government has long indicated its intention to have fuel selling at a local value equal to or slightly above USD1 per litre which has become a major contributor to periodic price reviews as exchange rate remains largely unstable. On this, fuel prices will likely keep on going upwards in line with the upward movement in exchange rates.

As it usually turns out, the increase in fuel prices trigger an increase in the price of other goods and services thus further eroding household earnings and can also depress the supply of other goods because it increases the costs of producing them.

Government, in the 2020 National Budget projects that inflation will fall to a single digit from the first quarter of the year, falling to as low as 2.3% by the end of the year. However, the recent increase in fuel prices and the exchange rate movements among the lack of other key fundamentals easily throw such projections into doubt.

Month on month inflation came in at 16.6% in December 2019 as government missed its 10% target while annual inflation based on ZIMSTAT figures closed at 521.16%.

ZERA pegged the new fuel prices using the interbank exchange rate of USD1: ZWL$17.1. Meanwhile, rates on the parallel market are currently trading between USD1: RTGS23 to 25 as the local currency continues to depreciate in value.

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