Fuel price hike sparks worries in economy

The sudden increase in fuel prices has created notable instability in the country's transport and industrial sectors, though prices of essential commodities have so far remained largely stable.  But market analysts fear that the hike in full prices will have adverse impact on essential commodity markets.

Business leaders warn that while the government adjusted fuel prices according to international trends, the latest hike will further strain local industries already under pressure. Despite the government's decision not to revise public transport fares, several Dhaka bus routes were reportedly charging passengers above government-fixed rates on Monday. Drivers and transport workers said the move was necessary to offset rising fuel costs.

The government raised prices for all fuel categories in the domestic market, citing fluctuations in the international market and the revised automatic pricing formula. The Ministry of Power, Energy, and Mineral Resources announced a Tk 2-per-litre hike for diesel, kerosene, petrol, and octane for December. The new rates, effective Monday, are: diesel Tk 104 per litre, kerosene Tk 116, petrol Tk 120, and octane Tk 124. This pricing mechanism, implemented as part of a transition to an automatic system since March last year and formally gazetted on February 29, 2024, aligns domestic prices with global trends.

Visits to Dhaka's kitchen markets-including Rampura, Malibagh, Shantinagar, Karwan Bazar, and Mirpur-showed that prices of daily essentials have largely remained unchanged.

However, industrial leaders expressed concern over rising production costs. Bangladesh Chamber of Industries (BCI) President Anwar-ul-Alam Chowdhury (Parvez) told The Daily Observer that higher fuel prices weaken the competitiveness of local industries. 

"The prices of domestically produced goods are already rising. A further hike in fuel prices increases production costs," he said. He added that although global oil prices have fallen, domestic rates have risen, which he described as "unjustifiable" and potentially pushing the country toward import dependency.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) President Mohammad Hatem echoed these concerns, noting that manufacturers lack the flexibility to adjust prices. "Rising wages, high bank interest rates, and increased production costs have already pushed product prices up. If fuel prices rise further, many factories may not survive," he warned.

Bangladesh Petroleum Corporation (BPC) estimates the country's annual fuel demand at around 7.5 million tonnes, with diesel accounting for about 75 percent, widely used in irrigation, transportation, and power generation.

Public reactions were swift and mixed. Transport worker Khurshid Alam in Mirpur-10 said, "When diesel prices rise, bus fares rise, and ordinary people suffer. Monthly price changes create a storm in our daily lives." 

Ride-sharing driver Faridul Islam added, "Two taka may seem small, but for those of us consuming 20-25 litres a day, expenses rise instantly, while passenger fares do not."

Dhaka University student Nusrat Tania highlighted household impacts: "Petrol and octane are no longer luxuries.

 Monthly increases strain family budgets, especially for motorcycle users." Business leaders also warned that rising transport costs could trigger broader price increases. Corporate employee Samiul Haque said, "Fuel is the bloodstream of the economy. Once its price rises, agriculture, transport, power generation-all costs rise."

Others, however, welcomed the automatic pricing model. Bank officer Sajib Rahman noted that linking domestic prices to global trends prevents sudden hikes or drops: "If global prices fall, domestic prices will also fall. Small monthly adjustments are better than sudden 20-30 taka jumps." Sher-e-Bangla Nagar businessman Abul Kalam said the approach also helps meet IMF conditions while preventing abnormal market fluctuations.

Energy experts highlighted potential long-term benefits but stressed transparency. Professor Imran Kabir said, "The government previously provided large subsidies. Now the market will play a greater role, but people should know how monthly prices are calculated." Government data indicate the domestic pricing formula considers import costs, global averages, exchange rates, transport charges, operational expenses, and a fixed margin.

An Energy Division official told The Daily Observer, "The automatic pricing mechanism aligns fuel costs with international trends. Prices will fall when global rates decline, stabilising the domestic market over time."

The transport sector is expected to feel the effects first. A Bangladesh Road Transport Owners Association member said, "Fuel price increases push up operating costs. We are monitoring the situation and may consider fare adjustments if needed." Agriculture may also face higher costs, as diesel price hikes increase irrigation expenses, affecting crop production. Experts warn that sustained global price rises could intensify domestic pressures in the coming months.

Despite immediate concerns, the government maintains that the automatic pricing system will ultimately benefit the economy by promoting fiscal discipline and ensuring greater market stability.