Surging fuel prices to likely stall growth, spike inflation

- RAJESH KHANAL, Kathmandu

Jun 4, 2018-

Petrol and diesel prices touched a four-year high on Sunday after Nepal Oil Corporation (NOC) increased the rates, citing hike in the international market. This could become a big headache for the KP Sharma Oli government which has set a target of achieving 8 percent economic growth and keep the annual inflation in check.

The latest revision in the prices of petroleum products means petrol now costs Rs113 per litre in Kathmandu Valley. Prices of diesel and kerosene have also gone up by Rs3 to Rs95 per litre. This is the eighth upward revision on petrol, diesel and kerosene prices, and third on aviation fuel in the last six months.  

While the soaring oil prices have hit consumers hard, it is expected to affect Finance Minister Yubaraj Khatiwada’s bid to keep the inflation

under 6.5 percent in the next fiscal year, starting mid-July. The high diesel prices will have a cascading effect on prices of essential goods, including vegetables and

food grains.

If gasoline prices continue to rise, it will create a far-reaching negative impact on the economy, economists have warned.

Economist Jagadish Chandra Pokharel said the soaring fuel prices would certainly hit the government’s target to tame the inflation. “In the post-budget situation, the market prices of essential goods such as pulses and edible oil have already shot up. The rise in petroleum prices has started adding burden on the customers,” Pokharel said.

“Achieving the target of 8 percent growth in the next fiscal year will be challenging if gasoline prices continue to rise,” Pokharel added. “It’s very early to come up with the conclusion on how the rise in fuel prices will affect the growth. But it will certainly create a far-reaching negative impact on the economy, jacking up cost of projects and living.”

Former commerce secretary Purushottam Ojha said the ever-rising fuel prices would increase the transportation cost, adversely affecting the cost of goods and services. “As a result, Nepali products will lose its competitiveness hitting the exports. This will definitely hit the economic growth rate,” Ojha said.

The economists said the higher fuel prices would also reverse the trend of consumer’s spending. For example, those consumers who have been spending more on food and less on oil, creating market and farm products demand, will be forced to spend more on oil.  

Lower fuel prices generally translate into higher consumer sentiment, according to the economists, encouraging the customers to spend more on fast food, restaurants and retail markets. Apart from the road transport, the hike in fuel prices is also likely to hit airline passengers. The NOC has increased the price of aviation fuel for domestic carrier to Rs100 per litre from Rs95, and hiked $75 per kilolitre to $1,075 for the international carriers.

Petrol has become dearer by Rs11 per litre in the past six months, with prices of diesel and kerosene going up by Rs16 a litre.

The NOC defended the hikes to the escalating crude oil prices in the international market. The state-owned oil monopoly has been adopting the automated pricing system on petroleum products, except cooking gas, since September 29, 2014. Under the system, the NOC revises the petroleum prices every fortnight and cooking gas once a month.

Despite the newly-revised prices, the NOC’s projected to incur more than Rs370 million in loss a month. The NOC statement indicates that another price revision is on the cards.

“We are forced to increase the fuel prices, otherwise our montly loss would have been Rs1.1 billion,” NOC Spokesperson Birendra Goit said, adding that the corporation has been incurring losses in all petroleum products except aviation fuel and kerosene. “The enterprise is compelled to cross-subsidise the fuel prices, keeping the price of cooking gas in check to protect consumers from high inflation.” According to him, the NOC has been incurring Rs139.39 in loss per cylinder in cooking gas.

Published: 04-06-2018 08:12

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