The increase in fuel prices since the beginning of this year is having a substantial impact on transportation costs in Oman and is likely to further boost inflationary expectations in the coming months.
The consumer price index’s (CPI) transport component has jumped 5.56 per cent in the first four months of 2016 after subsidies on petrol and diesel were lifted, according to National Centre for Statistics and Information (NCSI) data.
Transport inflation stood at nearly four per cent in April on a year-on-year basis, as Oman’s annual inflation rate inched up to 1.1 per cent. The cost of transportation, which has a more than 19 per cent weighting in Oman’s CPI, rose 2.75 per cent in April from the previous month, the NCSI statistics showed.
The Oil Ministry announced fuel prices for June on Tuesday.
Since January, the price of M95 (super) petrol has gone up 50 per cent (from 120bz to 180bz a litre), M90 (regular) petrol by 49 per cent (from 114bz to 170bz) and diesel by 27 per cent (from 146bz to 185bz).
“There will definitely be a significant impact on the cost of transportation. With the increase in fuel prices, the resultant higher transport costs will gradually spread to the rest of the economy because lots of goods need to be transported to end consumers. The increase in fuel prices has released a price pressure on all other categories of goods,” said Dr Fabio Scacciavillani, chief economist with the Oman Investment Fund (OIF).
A working paper prepared by the International Monetary Fund (IMF) on ‘GCC energy price reforms’ recently said the transport sectors, which are the largest consumer of fuel and oil products, would be the most impacted sectors in the GCC if energy prices were increased. “Initially, an increase in domestic energy prices represents a negative shock to the productive sector. The increase in energy prices would increase production costs, particularly in energy intensive sectors,” it said.
However, the IMF working paper suggested that the overall inflationary impact of higher energy prices in the GCC is likely to be small, and while there may be some adverse effect on growth in the near term, over the longer term the growth benefits should be positive.
Petroleum products are considered a major input in the economy as they are used in critical activities such as fuelling transportation and industries, Dr Scacciavillani said, adding, “If input costs rise, the cost of products also tend to rise.”
“I see heavier goods which need to be transported being most impacted. For example, cement, construction materials and equipments are going to be affected much more than chocolates. Food items which need to be transported in refrigerated trucks may also see a substantial cost impact,” he added.
The IMF projects Oman’s average inflation to remain at 0.3 per cent this year, the lowest among GCC countries, but rising to 2.8 per cent in 2017.
To mitigate the impact of higher fuel prices, Dr Scacciavillani said, consumers are likely to adopt more fuel-sensitive behaviour and move to fuel-efficient trucks and cars.
Source: MuscatDaily