Fuel price increase sparks inflation, interest worries

CONSUMERS should brace for tougher times ahead given the ever-rising cost of fuel, which analysts say is likely to upset macro-economic fundamentals as the prices of goods and services shoot up.

In separate interviews with The Namibian, economic commentators and bankers alike expressed concern that transport and production costs of goods and services will inevitably rise as fuel prices edges up. Conrad Wessels, a foreign currency dealer with Bank Windhoek, yesterday described the situation on the international market as giving cause for concern.Ordinary consumers, he said, were likely to be the hardest hit as the burden was passed on to them.Next Wednesday, the pump price of petrol will go up by 40 cents a litre while diesel will increase by 39 cents.This means that the petrol price in every corner of Namibia will break through the N$5-a-litre barrier for the first time ever.In South Africa, a litre of petrol now costs N$5,93, much higher than in Namibia.Announcing the new developments on Monday, Government said there was not much that it could do about rising crude oil prices on the world market except to pass the increases downstream.Wessels said though the South African rand and Namibia dollar was likely to remain strong in the short to medium term, the negative consequences of the fuel price increases were likely to start biting.”A strong domestic currency continues to shield local consumers from the harsh effects of fuel increases.However, given the continued trend, inflation is likely to start rising, eating away disposable incomes.The ordinary man will feel the impact,” Wessels said.The Namibia dollar is currently trading at around N$6,35 to the US dollar and, according to Wessels, it could slide to N$6,70.On a positive note, Namibia’s year-on-year inflation has remained comparatively low at 1,7 per cent as of July 2005.However it is anticipated to rise to anything between three and six per cent by the end of next year.In line with the rising inflation, interest rates are also expected to creep upwards again.Martin Mwinga, an economist and investment banker with First National Bank Namibia, said the fuel price hikes will have a negative impact on inflation and lending rates.”Interest rates will obviously go up in line with inflation demands.Borrowers will have to think twice before asking for a loan if the trend continues,” said Mwinga.Conrad Wessels, a foreign currency dealer with Bank Windhoek, yesterday described the situation on the international market as giving cause for concern.Ordinary consumers, he said, were likely to be the hardest hit as the burden was passed on to them.Next Wednesday, the pump price of petrol will go up by 40 cents a litre while diesel will increase by 39 cents.This means that the petrol price in every corner of Namibia will break through the N$5-a-litre barrier for the first time ever.In South Africa, a litre of petrol now costs N$5,93, much higher than in Namibia.Announcing the new developments on Monday, Government said there was not much that it could do about rising crude oil prices on the world market except to pass the increases downstream.Wessels said though the South African rand and Namibia dollar was likely to remain strong in the short to medium term, the negative consequences of the fuel price increases were likely to start biting.”A strong domestic currency continues to shield local consumers from the harsh effects of fuel increases.However, given the continued trend, inflation is likely to start rising, eating away disposable incomes.The ordinary man will feel the impact,” Wessels said.The Namibia dollar is currently trading at around N$6,35 to the US dollar and, according to Wessels, it could slide to N$6,70.On a positive note, Namibia’s year-on-year inflation has remained comparatively low at 1,7 per cent as of July 2005.However it is anticipated to rise to anything between three and six per cent by the end of next year.In line with the rising inflation, interest rates are also expected to creep upwards again.Martin Mwinga, an economist and investment banker with First National Bank Namibia, said the fuel price hikes will have a negative impact on inflation and lending rates.”Interest rates will obviously go up in line with inflation demands.Borrowers will have to think twice before asking for a loan if the trend continues,” said Mwinga.