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Fuel prices in Malawi may next month break the three-months stability after oil prices on the world market hit fresh record highs last week.
With big economies already worried that persistent increases in oil prices could retard global economic growth, Malawi’s economic recovery path appears thorny.
“The oil price is of course a concern, it could slow economic growth,” Reuters quoted Germany’s Finance Minister Hans Eichel as saying last week.
The Petroleum Control Commission (PCC) Wednesday said government has been using the fuel stabilisation fund and the In-bond Landed Cost recovery fund to keep the prices low and cushion the economy from more shocks.
PCC chief executive Ishmael Chioko, who is also secretary to the Petroleum Pricing Committee (PPC), could not say how much has been used to compensate importers losses. But he stressed that oil importers have recovered all the losses.
“Everything is okay now but next month we may have a problem because of the recent increases in oil on the world market,” said Chioko.
Last week, Brent crude rose 35 cents to US$40.99 a barrel, its highest level since London’s International Petroleum Exchange launched trading in Brent futures in 1998, according to Reuters.
Reuters said US crude struck US$44.30 a barrel, 15 cents up, and the highest since oil futures were launched on the New York Mercantile Exchange in 1983.
“At the next meeting, we have to find out the level of oil supplies and see if importers need to order oil at the new prices very soon? We will also look at their accounts and analyse whether there will be losses.
“If importers have losses, we need to assess if the stabilisation fund can cover their losses? Then we will make recommendations to government,” said Chioko, admitting that it will not be long before the cushioning becomes unsustainable.
If pump prices rise, the immediate effect will be on inflation resulting from fuel’s cost pusher effects which will in turn affect consumer spending, economists said yesterday.
“If commodity prices rise in response to increased fuel prices, the demand for goods will be low, slowing down the economy in the process,” said Kondwani Mlilima, Stanbic Bank economist.
Ned Bank Head of Treasury and Finance Andy Kuligomba said a rising inflation from high oil prices poses a challenge to Reserve Bank governor Elias Ngalande who wants interest rates to 10 percent by December.
The central bank has already expressed fear that rising oil prices on the international market and an expected food shortage could put off track its monetary targets.
Analysts say global oil demand has been growing much faster than anticipated, driven by China’s booming economy and signs of higher growth in the US. Terrorist attacks on oil wells has also contributed to this.
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