Shahiduzzaman Khan

The recent hikes of petroleum prices have not come as a surprise. In fact, the government was contemplating increasing the prices for long. However, the latest hike of major petroleum products, particularly of diesel and kerosene, is feared to fuel the already escalating inflation and push the cost of living further up. The people had already been suffering due to the extremely high house rent and transportation cost and the recent fuel price hike would add to their woes.

The rise in the diesel price is most likely to increase the cost of transportation, communication, and Boro cultivation forcing the fixed- and low-to-middle-income groups of people to allocate additional money in their budgets to meet the resultant burden. The rising price of commodities had been forcing such consumers to cut down on their consumption of non-food items which is expected to affect the gross domestic product (GDP).

The latest Bangladesh Bureau of Statistics (BSB) data reveals that the general index of inflation stood at 7.41 per cent in November rising from 7.22 per cent in October. On the other hand, an official handout late last week claimed the inflation would not cross the 7.5 per cent limit set for the fiscal year (FY) 2012-13 even after the latest price hike of petroleum products.

The latest round of fuel price hike has been enforced at a time when the lower-and middle-income groups of the society were already overburdened due to earlier hikes in diesel and kerosene prices by 38.64 per cent and that of retail power price by 60 per cent over the past two to three years. Such hike of fuel oils is expected to cause pressures anew on prices, particularly the non-food inflation. This will affect the consumption basket through a drop in buying capacity of lower- and middle-income people. The budget-cut by the fixed- and middle-income people for buying non-food items is likely to put a damper on import. This may affect the GDP as it is driven by consumption.

International financing agencies like the World Bank (WB) and the International Monetary Fund (IMF) were pursuing the government to withdraw subsidy from fuel and electricity to make the sector viable for private business. In exchange, the agencies would provide soft loans to the government to manage its budgetary deficit. The government has also persuaded the Bangladesh Energy Regulatory Commission (BERC) to raise the average price of electricity by Tk 2.24 a kilowatt-hour - from Tk 3.76 to Tk 6.0 - in six phases since March 2010.

The opposition, left-leaning political parties and transport owners protested the fuel price hike and the BNP-led 18-party alliance called a nationwide dawn-to-dusk hartal today (Sunday). The BNP claimed that ignoring the demands of the people, the government has stubbornly and unilaterally decided to hike fuel prices forcing the opposition alliance to call the dawn-to-dusk hartal.

Defending the fuel oil price hike, Finance Minister AMA Muhith said fuel prices in Bangladesh were far below than those in the international market. He said fuel is smuggled to the neighbouring countries because it is cheaper here.

Since the non-food inflation of the country was creeping, the fuel price hike would instigate the inflation further, which will have an impact on the economy. Experts say it was true that the price of diesel in India was higher than that in Bangladesh. But it is not clear whether it is high enough to discourage illegal trading. Everybody should appreciate the transportation cost and the ability of the poor people to shoulder the extra burden, as the economic scales of the two countries are different. Experts say the farmers and others in India also receive much more support than those in Bangladesh.

The latest hike in petroleum prices, as many commentators have observed, will put the transportation sector in disarray. The leaders of the sector said the hike created discontent among vehicle owners, transport workers as well as the common people. It would make transportation of goods and passengers costly. They say the government should have taken necessary measures to check its existing systems loss in the petroleum, power and energy sectors, instead of enhancing the prices.

The hikes will no doubt have an adverse impact on the living standard of general people, especially the lower middle and poorer segments. The fuel oil price increase will push the production cost up directly as the electricity generation costs will rise because of it. The price hike will also further raise agricultural production. This will have adverse impact on inflation, specially non-food inflation.

Some economists say though food inflation has come down in recent times, the price hike will instigate non-food inflation affecting the overall economy and living standard of the people. The government should come up with a statement, classifying its stance in a transparent manner so that the measure is not considered to be anti-people. Some attributed the price hike to the existing system losses in marketing and import of petroleum products.

As a result of the fuel oil price hikes, survival of the export earning sector like readymade garments (RMG) will be put in a tougher situation. Before enforcing any hike in fuel prices, the government needs to assess the impact of price adjustment on different sectors of the economy. It is necessary to adjust the fuel prices in a manner so that this hike affects less number of people. In a welfare-oriented state, the government considers protective measures for the low-income people before effecting any hike to administered prices. Measures are also taken up to stop the possibility of social discontent over the fuel price hikes across the country.

The challenges before the country are already too many. The key ones include volatile petroleum prices in the international market, price hike of essential commodities, power shortage, ever-increasing economic disparity, and pervasive corruption. Such challenges need to be addressed firmly. As long as real economic imbalances are serious, monetary and fiscal measures may not be of much use in arresting the inflationary trend.

szkhan@dhaka.net