There’s a joke running with Zimbabweans when it comes to price increases of regulated products. First, a rumour of a price increase will surface, then we wait for the government to deny the price increase rumour, which serves as a confirmation of the price increase. This took a further twist on Tuesday 28th May as fuel price increased, less than 7 days after the last increase.
There were varying reports on the prices that fuel was retailing for but the prices were around ZWL$7.80 for diesel and ZWL$7.98 for petrol. The government through various channels including Finance Ministry permanent Secretary George Guvamatanga vehemently denied the price increase but consumers were already paying the elevated amounts.
Last week the Reserve Bank of Zimbabwe scrapped the subsidy fuel companies were getting on foreign currency and mandated that fuel companies must join the interbank market. This resulted in a massive surge in the interbank market rate without information on the volume of trades. However the interbank market is dogged with supply-side problems, among others, and it is unlikely that it can provide for the needs of industry with a monthly import requirement estimated at US$120 million per month.
Since it’s inception the interbank market has only traded a little over us$80 million. So perhaps fuel companies have been forced to turn to the parallel which potentially has a consistent supply. A quick look at the numbers would reveal that the new prices coincidentally are consistent with the parallel market’s valuation of the RTGS dollar at 7.5 to the greenback.
As has become the case with such stories there was information to the contrary also doing the rounds with images of price boards showing no price change in fuel for some major service stations. It was however unclear if these service stations, in fact, had fuel at the time.
The true effect of this hike is the inflationary pressure it places on an economy that is already beset with inflation. Inflation figures for April 2019 came in at 75.86% and that was before the developments we’ve seen since then. This can only add to the inflation spiral as crippling power shortages leave many businesses relying on fuel-powered generators. Of course, the effect of fuel price on transportation of goods and people cannot be understated as well. The writing has been on the wall for quite some time.
While the government admitted there was a price review underway they did not acquiesce to the price increase that was administered on Tuesday. One would be remiss to believe that this story is anywhere near over.