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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2523

Fuel Price Hike and the Impact on the Economy

Hemantha Abeywardena writes from London…

Oil prices are on the increase again and the obvious impact is not just confined to the sphere of macro economy. It’s happening when we can least afford to let it be, in the light of worries about global growth, worsened by trade disputes, conflicts in the Middle East and of course, the messy-nature of the Brexit.

If the current trend of the oil price continues, it will certainly damage the global growth. When that happens, the demand for fuel will fall and the price will follow the inevitable trend. Petroleum exporting countries, which are still reeling from the bumpy ride that started in 2014, know too well how bad a repetition of that kind it.

At present, the Chinese economy is slowing down and the authorities make no effort to hide it or put a gloss over it. The situation in India is no better. Independent analysts, meanwhile, estimate that the official figures may be worse than what we are led to believe.

In the developed nations, the current fluctuations of price at the pump may not affect the consumers’ wallet in a significant way. As a result, the governments do not directly come under criticism over the increase in price. If you walk into a supermarket, however, the price changes in essential items are not just subtle, even if the inflation does not reflect them; they are significant, indeed.

Since the Western governments do not dictate the oil price, it is purely driven by market forces; if there is any the disproportionate inflating, it is usually the job of hyperactive speculators. Owing to this development, even within a radius of 5 miles, you find many petrol stations that display different prices throughout the day with no consistency whatsoever in their daily calculations.

If the oil price starts going through the roof again, its only inhibiting factor is going to be President Trump: because, he is the only global leader who cries out about the damaging oil price on behalf of all of us; when he picks on Saudi Arabia, citing the protection offered to the latter by the US, for instance, it usually works; when Saudis sneeze, the rest of the OPEC catch a cold.

In Sri Lanka, meanwhile, the price of fuel went up recently, while being subjected to the famous formula – MRP = V1 + V2 + V3 + V4. What we don’t know, however, is which factor or factors determined the recent hike.

I assume that the landed cost per litre and taxation per litre may have played a big role in the not-so-transparent process.

In order to experiment with the four given factors, I produced the following, simple applet for anyone to estimate the next price, based on them. It’s set as of October 10th, 2018, in line with official figures.

The four factors are represented by four sliders; all you have to do is to move the sliders to the left or right in order to estimate the petrol price; the applet is restricted to petrol – 92 Octane, for obvious reasons.

The rise in fuel price is going to affect the Sri Lankan economy in the coming months and the effect will be detrimental to growth. The scale of impact hinges on a fence of global factors, over which we hardly have any control – politically or otherwise.

In these circumstances, what we can’t afford to see is adding the political uncertainty to the existing heap of factors that determine the nature of our economy. In order to keep it at bay in an election year, we certainly need the help from a realm above our heads – when everything else fails.

- Asian Tribune -

Fuel Price Hike and the Impact on the Economy
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