HARARE- Petroleum prices in Zimbabwe were revised early Monday morning barely a fortnight after another increase. Both petrol and diesel have remained in short supply and erratic for the better part of 2018 into 2019 in line with forex shortages and steep government subsidies of certain commodities.

In a letter to fuel expressers, ZERA said it has pegged the latest price of diesel at ZW$7.19 per litre while blended petrol prices were raised to a maximum of $7.47 per litre. The increase in fuel is not a first and comes barely 10 days after another adjustment.

Since January, government which controls the price of fuel has hiked same at least 5 times with notable increase instituted in January at 150% and in July at 80%. The latest increase is a jump of 22% on the last price which in turn was adjusted 10 days ago.

The continued adjustment in the price of fuel follows the volatility in exchange rate since the local currency was floated in February. The January increase came at a time Zimbabwe was pursuing a controlled exchange rate regime which equated the value of the local currency at par to the USD.

The scarcity of foreign exchange against surging RTGS balances within the banking system implied a variance to the suppressed exchange rate in favour of the US dollar. Government, through the RBZ was then controlling forex allocation and arising subsidies including those of fuel were being absorbed by the fiscus.

Despite the partial float of the exchange rate in February 2019, subsidies on fuel did not completely go away. Players in the sector were offered Letters of Credit so as to enable them to source fuel from outside the borders.

 These Letters of Credit are a promise by the government to settle suppliers obligations within a stipulated time. On the local front the LCs are typically priced at below prevailing interbank market rate.

This essentially means fuel dealers are paying less for their imports and the magnitude of loss is estimated by the difference between the moving interbank market exchange rate and the rate offered by government to importing players.

In an interview earlier this month, the minister of finance said he expects the price of fuel to go up to close to USD$1 so as to close the subisidy gap. The midrate as at last Friday was circa 1:9. In the latest price increase government utilised an exchange rate of 1:7.5 which is below the market.

It is unlikely that average prices will come off in the very short run as envisaged by government given the revised fuel prices. In June inflation hit a new high of 175.66 which is a post dollarization high.