RISING FUEL PUMP PRICES TO INCREASE THE COST OF BUSINESS
Thursday, August 31, 2023
Kingford Kalobi | FZICA|FCCA |
Fuel is a significant cost driver of production. The average increase of 15% by ERB is too high for our economy, which is struggling with cost push inflation and a weakening local currency (ZMW).
This will increase the cost of business for all sectors, though the manufacturing and transport sectors are likely to be hard hit.
The effects of rising fuel prices are easy to feel when you are filling up at the gas station. For businesses, especially SMEs, they have to make a series of decisions, sometimes difficult, to make up for those costs and maintain operations.
General rise in prices – Ripple effect
When companies have done everything they can to cut overhead costs, eventually they will face market pressure to pass that burden onto customers by increasing prices. We usually see this immediately in the transport sector. By tomorrow we expect to hear increase in bus fares for both local and inter city travels.
Logistics and transport
Especially for companies with vendors and suppliers transporting goods or delivering services that are essential to daily operations, rising gas prices increase the cost of doing business. As fuel prices increase, vendors and suppliers will tend to spike the price of their products and delivery so they can offset their transportation costs. Food prices are essentially affected in the same fashion. This, in turn, raises the ‘Cost of family food basket’. You will appreciate that fuel and household inflation expectations are closely correlated.
Further, rising fuel prices can ultimately bring an economic recovery to a halt, which will often affect the job market. Companies may put off hiring if they are concerned about the health of the economy, and this might also cause them to evaluate how consumer spending decline leads to less sales.
Allow me to end by pushing a rather unpopular correlation between fuel price hikes and the recent hike in the Monetary Policy. Isn’t it a coincidence that barely a few weeks ago that BOZ announced an increase in the monetary policy that we now have a hike in fuel pump prices by 15%. If you ask me the increase in the two economic variables makes it extremely hard for businesses to thrive.
I wish I could write more……..