Another fuel price hike escalates the pervasive cost of living crisis
By Josef Kefas Sheehama.
Namibia’s Ministry of Mines and Energy has announced an adjustment in fuel prices, set to take effect from 06 September 2023, in response to a complex web of local and international factors. Unfortunately, this news brings a headache for both consumers and businesses, as petrol prices are poised to rise by N$1.20 per litre, and diesel by N$1.70 per litre.
The rollercoaster ride of global oil prices in recent years has been nothing short of dramatic. The pandemic in 2020 saw a historic drop in oil demand due to lockdowns, with prices even briefly plummeting below zero. This unprecedented event was a consequence of the severe economic downturn that accompanied widespread restrictions. Fast forward to today, and oil prices have rebounded dramatically, crossing the US$100 per barrel mark. The global economy’s resurgence has fuelled this surge in oil demand, while geopolitical tensions in regions like Russia and the Middle East have stoked fears of supply disruptions.
The impact of these rising oil prices reverberates not only at the fuel pump but throughout our daily lives. Oil serves as a vital feedstock and energy source, influencing the costs of transporting goods and services across the board.
Namibia’s monthly fuel price adjustments are influenced by a combination of international and local factors. Internationally, Namibia imports both crude oil and finished petroleum products, and the prices are determined at the international level, factoring in importation costs. Recent fluctuations include a rise in the average Brent Crude oil price from US$79.75 to US$84.78 primarily attributed to OPEC+ production cuts tightening global supply. Concurrently, the Namibia Dollar depreciated against the US Dollar, compounding the pricing equation.
For consumers and businesses alike, higher fuel prices have far-reaching consequences. Households typically allocate a larger portion of their budgets to fuel when prices increase, leaving less for other goods and services. Similarly, businesses that rely heavily on fuel, such as those in transportation, agriculture and construction, experience increased production costs. This, in turn, can contribute to a broader rise in inflation, affecting households and businesses alike.
Rising inflationary pressures can also prompt the central bank to consider raising interest rates, as witnessed in the case of Namibia, where a 50-basis-point variance in the repo rate with South Africa underscores the delicate balance in managing inflation and economic stability.
The impact of fuel price hikes isn’t limited to inflation and production costs. Such increases can potentially hamper economic growth by affecting the supply and demand for non-oil-related goods. As oil prices rise, they can raise production costs across various sectors, shifting supply curves and influencing prices. This complex interplay highlights the need for sound economic policies, transparent monetary practices, and effective regulatory systems.
Moreover, the recent escalation of tensions in Ukraine, the OPEC+ production cuts and the weak Namibia Dollar, are the primary drivers behind Namibia’s fuel price increase. These factors, combined with higher crude oil prices, pose challenges for Namibia’s fiscal deficit and current account balance due to increased import costs.
In these uncertain times, a collaborative effort is needed to address the immediate and strategic importance of energy while ensuring stable economic growth. Strategies should focus on governance, transparency in monetary policy, and regulatory frameworks for financial and capital markets.
To sum up, Namibia’s fuel price fluctuations are intricately linked to global oil prices and the exchange rate. The current inflationary pressure stems from geopolitical tensions and OPEC+ decisions, emphasizing the need for careful economic management amid global uncertainties.