Fuel price woes

Ahmed Kotb , Friday 22 Jul 2022

The recent increase in fuel prices could translate into higher inflation in the coming months.

Fuel price woes

 

In its recent quarterly review of fuel prices, Egypt’s Automatic Fuel Pricing Committee decided to raise the prices of a litre of 80-octane and 92-octane petrol by LE0.5 to LE8 and LE9.25 respectively, while a litre of the highest-grade fuel, 95-octane, rose by LE1 to LE10.75.

The price of diesel also rose for the first time since 2019 from LE6.75 to LE7.25 per litre.

The committee has fixed the price of the diesel supplied to the food and electricity industries, but has increased the price of supplies to other industries by LE400 per ton to reach LE5,000 instead of LE4,600.

The committee’s quarterly price-indexation system takes into account global oil prices, the exchange rate of the Egyptian pound against the US dollar, and other economic conditions.

The last few months have witnessed increases in international oil and gas prices, as well as in the prices of food staples, due to the ongoing war between Russia and Ukraine. Brent crude oil has reached $120 per barrel, up from about $60 before the war in Ukraine.

The Egyptian pound has also lost about 15 per cent of its value against the dollar since the beginning of 2022.

According to Prime Minister Mustafa Madbouli, the hike in fuel prices will mean the state will spend LE55 billion in annual diesel subsidies instead of the LE63 billion it spent in the previous fiscal year of 2021-22.

He added that the state had had to change its budget plans in order to avoid huge losses amid predictions that the war between Russia and Ukraine would last for a year or more.

It will now provide diesel at LE7.25 per litre although its true cost is LE11, Madbouli said, adding that the government was bearing the largest portion of the rise in global fuel prices.

“The government has not raised the price of diesel for a long time, as it is used in many fields, including mass transportation, cargo, and agricultural machinery,” Madbouli said.

Transport tariffs have increased by five to seven per cent for Cairo and inter-governorate transportation.

Minister of Local Development Mahmoud Shaarawi said action would be taken to address any manipulation of transport prices. He vowed to intensify joint campaigns by traffic departments and supply directorates within each governorate to ensure that drivers adhere to the new tariffs.

Alia Mamdouh, chief economist at Beltone Investment, said the increase in fuel prices would have a direct and indirect impact on inflation, especially the increase in diesel prices. This would impact the price of transport, she said, indirectly affecting the prices of other goods and services.

She said in a statement that she expects a monthly increase of 2.5 to three per cent in headline inflation for July. A greater impact on inflation compared to previous rounds is expected, due to the significant increase in the price of diesel, the main fuel used in transporting goods, she said.

Transport costs are significant in the food and beverage sector, which represents about 36 per cent of the consumer price index basket.

Hani Berzi, head of the Export Council for Food Industries, said that factories would not raise prices even after diesel prices have increased. “They will bear the increase in diesel prices as the percentage of this in the final cost of products is not large,” he said.

Berzi said that the greatest impact came from the cost of transport, which factories will try to absorb, especially since the cost of diesel fuel directly supplied to the food industries has been fixed.

Minister of Supply Ali Moselhi announced on Sunday that the General Authority for Supply Commodities (GASC) would continue to meet the difference between the actual cost of production and the price of subsidised bread sold to consumers from bakeries using diesel fuel.

“The GASC will pay the net cost of producing subsidised bread at diesel-fuelled bakeries after the latest fuel prices hikes, keeping the price of a loaf of bread at five piastres,” Moselhi said.

However, Abdel-Aziz Al-Sayed, head of the Poultry Division at the Cairo Chamber of Commerce, said that the rise in the price of diesel would affect poultry prices. He said that diesel is used to transport poultry from farms to traders, and it is used for making feed and for heating chicken houses in winter.

“The impact of the increase in the price of diesel on poultry prices will become clear during the coming weeks, and then the likely rate can be determined,” Al-Sayed said, adding that an increase of 50 piastres per litre was not large, with the increase in a 20-litre canister of diesel being estimated at about LE10.

Walid Abdel-Rahman, head of the commercial affairs department at the Giza Chamber of Commerce, said that it could be difficult to control the market, despite efforts by the chambers of commerce to fight the rising prices of commodities.

He said measures taken by the chambers of commerce to limit price increases had included the wider sale of subsidised goods such as fish, meat, and poultry.

 

*A version of this article appears in print in the 21 July, 2022 edition of Al-Ahram Weekly.

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