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The cascading effect of fuel price hike: Price hikes and fast-fading home fires

01 Jan 2022

  • Costs of rice and curry meal, bakery products rise
  • Transport and production cost increased: SLRA
  • Tariffs removed on essential food items sold through State retailers
  • Fuel price hike adds to hardships faced by farmers
By Maneesha Dullewe Rising fuel prices have once again taken centre stage in the ongoing cost-of-living saga, with everything from consumer spending to public utilities inching along on an upward trajectory. Following the Ceylon Petroleum Corporation’s (CPC) announcement that fuel prices would be increased with effect from 21 December, prices of 92 octane petrol, 95 octane petrol, auto diesel, super diesel, and kerosene climbed by Rs. 20, Rs. 23, Rs. 10, Rs. 15, and Rs. 10, respectively. Additionally, the Lanka Indian Oil Corporation (LIOC) joined the CPC’s decision and introduced identical increases in the prices of 92 octane petrol, auto diesel, and super diesel. The price of food staples across the globe reached successive highs, according to the United Nations’ (UN) Food and Agriculture Organisation’s (FAO) Food Price Index (FFPI). The FFPI, which measures the monthly change in international prices of a basket of food commodities including cereal, vegetable oils, dairy, meat, and sugar, increased to 1.6 points in November 2021 from October the same year.  This is the fourth consecutive month the index has risen, as well as the highest level for the index since 2011. The effects of these Covid-19 era global supply chain complications and subsequent shortages are also felt in Sri Lanka, with inflation for food and energy still on the upswing. Increases for essentials such as bread, milk, rice, flour, and fuel remain unrelenting, affecting not only consumers but industry producers as well. Food producers and retailers The FFPI’s sub index for cereal prices notes that November 2021’s points rose by 4.3 from the previous month due to strong demand and tight supplies among major exporters. This marks the fifth consecutive month that wheat prices have continued their increase, as well as being the highest level for cereal prices in the last decade (May 2011). The steep increases underscore the fact that restaurants and food makers are not immune to pressures arising from high gas prices, contributing to retailers being compelled to pass on the higher expenses onto consumers. Under these circumstances, food manufacturers have faced higher costs for commodities, labour, and transport. These costs have surged further in recent months. Accordingly, All Ceylon Canteen Owners’ Association President Asela Sampath said that with the fuel price increase, the price of a rice and curry packet had increased by Rs. 200. He added that the hardships being faced by restaurant/canteen owners were not solely due to the fuel price hike, but were compounded by poor government policies, and at present many establishments have closed down due to overall unbearable overhead costs coupled with a steep drop in customers as consumers continue to feel the pinch. Meanwhile, All Ceylon Bakery Owners’ Association (ACBOA) President N. K. Jayawardena told The Sunday Morning that the increase in fuel prices has affected their businesses. “Prices of all bakery products have increased,” he emphasised, adding that they would have to wait and see what happens regarding the recent decision by the ACBOA to temporarily avoid recommending price controls for bakery products, which was brought about due to the fuel price hike. He confirmed that there was no decision made so far regarding bringing back these price controls. Acknowledging that the fuel price hike would drive up food prices at retail outlets, Sri Lanka Retailers’ Association (SLRA) Chairman Hussain Sadique said: “Prices of everything will go up, including transport and production costs, etc.” However, he also pointed out: “It’s not only due to fuel; the overall economic indicators are negative so everyone will take a safe approach. Each time the cost of raw materials is different, and currency fluctuations, various government taxes, and policy changes, etc. will also have an effect,” he concluded. The fuel costs have also directly impacted vegetable prices, with All Ceylon Farmers’ Federation National Organiser Namal Karunaratne sharing: “Transport costs have increased. Farmers often use kerosene and diesel, which have also increased in price. The cost of hiring machinery such as hand tractors had also increased with the fuel price hike. On the one hand, farmers experience increased production costs. On the other hand, transport costs for vegetables have increased. Vegetables must be transported from the farm to the economic centres, then to the Peliyagoda Manning Market, etc. and then to the retail store. Cumulatively, this results in heavy transport costs, which is then added to the vegetable price. Then the person who suffers is the consumer.” Before the fuel price hike on 21 December, prices of essential vegetables such as cabbage, beans, and carrots at the Dambulla Economic Centre stood at Rs. 120-150, Rs. 220-250, and Rs. 190-200 respectively on the morning of that same day. In comparison, cabbage, beans, and carrots ranged from Rs. 275-280, Rs. 300-320, and Rs. 430-440 last Thursday (30 December) morning. In response to the ongoing economic upheavals, Trade Ministry Secretary Bhadranie Jayawardhane reasoned that the present circumstances were at the mercy of outside sources. “We are operating at a time when the whole world is facing a severe pandemic situation and global supply chains have collapsed. This has severely affected exports, imports, as well as the local economy,” she commented. Discussing the fuel price hike, she elaborated that while the escalation was inevitable, the Government had launched several relief measures for the public. “Fuel is an item that supports the infrastructure of everything. Under these circumstances, when global fuel prices rise, correspondingly, the Government will increase prices. Based on this, the production cost of items will increase, and therefore individuals and companies will increase prices of commodities that do not have price controls. The Trade Ministry has removed the tariffs on sugar, dhal, and rice, and rice is being supplied at concessionary rates through Sathosa,” she explained. Moreover, she noted that the Government is preparing to provide relief to low-income earners by enabling them to obtain certain goods at low cost. For this purpose, the Government has planned a new concept called Home Shop for 2022, and will launch a network to issue products from direct importers and local manufacturers to each grama niladhari division. What became more expensive in November 2021? According to the National Consumer Price Index (NCPI) – a key measure of inflation that has risen to 155.3 in November 2021 against the 139.8 of the previous November, and climbed 3.1% compared to October 2021 – the hikes in food are part of a trend in increasing prices overall. As per the NCPI, several non-food categories including electricity, gas, and other fuels saw a significant uptick in comparison to November 2020 as well as October 2021, although price indices of certain other non-food categories remained unchanged from October 2021. The NCPI notes that prices for water, electricity, gas, and other fuels rose 0.08% from October to November, while transport costs increased by 0.06% and restaurant and hotel prices went up 0.20% within the same period. Public transportation With higher gas prices, commuters are faced with increased fares. Lanka Private Bus Owners' Association (LPBOA) President Gemunu Wijeratne shared that the final discussion on price increases would be undertaken with the Ministry of Transport last Wednesday (29 December), as they had submitted their report pertaining to the revision to the National Transport Commission (NTC). He confirmed that there would be an inevitable fare hike in light of the recent increase in fuel prices. Speaking to us last Tuesday (28 December) in response to queries regarding the then upcoming price revisions, NTC Director Nilan Miranda said: “We have collected data from the relevant parties. There are 12 main criteria and many other sub-criteria, and now we have calculated it and the report will be submitted to the Ministry of Transport, and State Minister Dilum Amunugama will announce the price change on Wednesday.” Accordingly, State Minister of Transport Dilum Amunugama, addressing a press conference on Wednesday announced that the minimum bus fare of Rs. 14 will be increased by Rs. 3 with effect from 5 January onwards. The State Minister noted that the other bus fares for SLTB and private buses will be increased by around 16.5-17% based on the pricing formula. Utility prices  Both electricity and water costs are likely to remain unchanged despite soaring fuel costs, according to sources from the respective utility providers. A Ceylon Electricity Board (CEB) senior official who preferred to remain anonymous told The Sunday Morning that while the production costs will increase, there will be no price increase for electricity. “As far as I know, nothing will be passed on to the customers. This is the second consecutive time the fuel price is increasing. Our selling price is always frozen. There is no change. While the production costs will increase, we can't pass that cost onto the customer. That is the Government policy. Nothing will happen,” he assured. He emphasised: “Even if fuel prices increase, our prices can’t increase, unless the Government decides to. Until today, there has been no such precedent so we will bear the costs, because we have to give the electricity at an affordable price to the customer. That is the norm. This is why the CEB suffers a loss even without a fuel price increase. Usually tariffs on electricity are not likely to be increased despite production cost increases. An electricity price increase would have an impact across the board. So any government is reluctant to increase the electricity tariff.” Speaking to us, National Water Supply and Drainage Board (NWSDB) Deputy General Manager – Commerce Piyal Pathmanatha assured: “There is no such impact on water prices as yet, since fuel price hikes don’t affect us directly. As we use electricity instead of generators, there is no significant impact for now. Water prices would only get affected if electricity prices were to rise.” According to him, water prices would therefore remain unaffected for the foreseeable future.  

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