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More pain for motorists, businesses

The Ministry of Mines and Energy has blamed ‘significant under-recoveries’ for raising the prices of petrol and diesel yesterday.

The ministry in a statement yesterday said under recoveries recorded for petrol stood at N$2,40 per litre and N$3,54 and N$3,48 per litre on diesel 50ppm and diesel 10ppm, respectively.

It is against this background that the price of petrol will be increasing by N$1,20 per litre on Wednesday, while the price of diesel will go up by N$1,70 a litre.

This is the first fuel price increase in Namibia since March, when the price of petrol went up by N$1,50 a litre.

After the increase on Wednesday, fuel prices at Walvis Bay will be N$20,98 per litre of petrol, N$20,75 per litre of diesel 50 ppm and N$20,95 per litre of diesel 10 ppm. The rest of the country will be adjusted accordingly.

“The National Energy Fund will absorb the entirety of the under-recoveries on behalf of fuel consumers through the fuel equalisation levy,” said ministry spokesperson Andreas Simon.

Economist Robert McGregor said the increase comes as no surprise because of the weaker rand and increases in global oil prices, and particularly the increase in refining margins seen globally.

He said pump prices will still be lower than they were in September 2022, thus will still be deflationary, but not as deflationary as they were in June, July and August this year.

“Nonetheless, fuel prices still remain materially higher than they were before 2022. This is obviously bad for consumers, reducing disposable income,” McGregor said.

Economist Joseph Sheehama said one can expect an increase in inflation due to the fuel hike, which affects the costs faced by most households and businesses.

He said inflation rate increases push the Bank of Namibia to increase the repo rate, as well as commercial banks.

“In terms of inflation, oil prices directly affect the prices of goods made with petroleum products. Fuel prices indirectly affect costs such as transportation, manufacturing, and heating.

“The increase in these costs can in turn affect the prices of a variety of goods and services, as producers may pass production costs on to consumers,” Sheehama said.

Research assistant Angelique Bock said the surge in fuel prices translates to increased expenditure for vehicle owners, inevitably narrowing disposable incomes for many Namibians and intensifying financial pressures on households.

Concurring with Sheehama, Bock said numerous businesses that are heavily reliant on fuel for their operations will witness a surge in operational costs, which may lead to them passing these additional expenses on to consumers in an effort to safeguard their profit margins.

Bock said the transport category in the inflation basket, which experienced deflation rates in June and July due to lower fuel prices, is likely to see a reversal of this trend, potentially contributing to increased fuel inflation rates.

“In September 2023, although annual fuel inflation rates may appear artificially lower than the previous year due to the high base effect from September 2022, transport inflation carries substantial weight in the inflation basket, ranking as the third most significant category,” she said.

She also noted that the repo rate is not anticipated to witness substantial alterations as a result of the September 2023 inflation rate, mainly due to the aforementioned high base effect.

“However, any adjustments in the future will depend on the trajectory of fuel prices and the decisions made by the South African Reserve Bank. Lastly, the persistently low trend in annual private sector credit extension rates suggests a tightening of monetary policy, which poses a potential threat to economic development and gross domestic product growth, as borrowing becomes more costly and less accessible for businesses and individuals alike,” said Bock.