Fuel price hike stokes inflation fears

 
The latest fuel price hike has sparked fresh fears of inflationary pressure in Bangladesh, with higher transportation, agricultural and production costs expected to gradually push up the prices of essential commodities and squeeze household budgets.

The government raised the prices of diesel, kerosene, petrol and octane by Tk20 per litre from September 21. Diesel now costs Tk135 per litre, kerosene Tk155, petrol Tk160 and octane Tk165.

Although the immediate impact has yet to be fully reflected in retail markets, traders and economists fear the higher fuel costs will spread across the supply chain, particularly affecting goods transported over long distances and industries dependent on diesel-powered machinery.

Transportation is expected to be the first major channel through which the hike will affect prices. A large portion of Bangladesh’s goods transportation system depends on diesel-powered trucks, covered vans, buses and water vessels.

Traders say higher transport costs will increase the expense of moving goods from production areas to wholesale markets and eventually to retail outlets. Vegetables, fish, meat, rice, pulses and other daily necessities could face particular pressure, especially those transported from rural production centres to Dhaka and other major cities.

Transport operators have already demanded fare adjustments, while the Bangladesh Road Transport Authority (BRTA) has been involved in discussions over a possible increase in public transport fares.

Consumer rights activists, however, fear that traders and transport operators could raise prices disproportionately compared with the actual increase in fuel costs.

Agriculture, industry under pressure
The impact will extend beyond transportation. Farmers rely on diesel-powered irrigation pumps, tractors and other machinery, meaning higher fuel prices will raise production costs.

The cost of carrying agricultural produce from farms to local markets, wholesale centres and urban areas is also expected to rise.

Agricultural economists say the higher costs could eventually be passed on to consumers unless the government takes steps to ease the additional burden on farmers.

Industries are also facing a double blow from higher fuel and logistics costs. Factories that rely on diesel generators during gas or electricity shortages will see their operating expenses rise.

Shams Mahmud, managing director of Shasha Denims, said the fuel price increase would raise costs in production, logistics, agriculture, services and fast-moving consumer goods.

Higher energy costs could put additional pressure on export-oriented industries already facing difficulties in maintaining competitiveness, he said.

Anwar-ul Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries, said businesses were already going through a difficult period.

The increase in fuel prices would raise production and transportation costs and could force some businesses to reduce their operations, he said.

The garment sector is also expected to feel the impact, with higher diesel costs adding to the operating expenses of factories that depend on generators amid inadequate gas and electricity supplies.

Inflation concerns
Economists say the fuel hike could create another round of inflationary pressure by increasing transportation, production and distribution costs.

Dr Selim Raihan said higher fuel prices would increase transportation and production costs, adding fresh pressure to inflation.

Dr Fahmida Khatun, distinguished fellow of the Centre for Policy Dialogue (CPD), also warned that higher fuel prices would affect transportation, agriculture and industrial production, putting greater pressure on low-income and lower-middle-income households.

The concern comes amid already high inflation. According to Bangladesh Bureau of Statistics data, overall inflation stood at 8.26 per cent in August. Food inflation was 7.02 per cent, while non-food inflation rose to 9.32 per cent.

Meanwhile, national wage growth stood at 8.05 per cent, below the overall inflation rate.