Fuel price hike to have cascading effect on essentials

This is what economist Dr. Damber S. Kharka says

The rise in fuel price will have a cascading effect on essentials, economist Dr. Damber S. Kharka said, adding that the transport cost of essential commodities such as food grains and meats will shoot up, and is expected to be passed on to the customers soon.

He said that the price rise in the retail market will only add to the hike in the wholesale market.

“The fuel price hike has increased the cost price of commodities for us as the transport cost goes up, over which we will have to accommodate our retail margin,” he said.

However, the fuel price hike has already led to cost escalation at both wholesale and retail markets, which will eventually be passed on to the consumers.

“If there is a further hike in fuel price, transport costs will further go up, leading to inflation,” Dr. Damber S. Kharka said.

In addition, he shared that the fuel price is out of our hands. “Our country is the net importer and as the price in the international market goes up, we are directly affected.”

This means that consumers will have to pay more for the same goods now compared to the period when the fuel price was not increased. Since fuel is an essential commodity that has very negligible price elasticity, the burden of price increases falls directly to the consumers.

Similarly, the consumer’s basket on essential commodities also has very low price elasticity which means the increase in transportation cost of these goods fall on to the consumers in the form of the price increase. This will affect consumers’ pockets. 

Meanwhile, the country’s fuel price is dependent on the Indian economy since Bhutan directly imports fossil fuel products from India. According to the Department of Trade, the increase is due to the rising price of global crude oil and Rupee depreciation.

The price of petrol and diesel has recorded an all-time high this month. The price of petrol increased by Nu 4 on last Saturday and diesel saw an increase of more than Nu 5 per liter.

Dr. Damber S. Kharka shared that the price hike has directly come from the international market. However, as the price goes up, the burden can be shared between fuel suppliers and consumers in the local market rather than letting the suppliers pass on all of the price hikes to the consumers.

“Another step is to subsidize some portions of the price increase as it is quite high this time. Again knowing the economic situation, the government may have problems doing so,” he said, adding that the only wish we should have is that the fuel production in the producing countries goes up and the price comes to a stable position soon. 

He added that the rise in the price of fuel is expected to continue until the global demand and supply stabilize.

According to the Annual Environmental Accounts Statistics 2021, Bhutan imported oil at around 370.208KL per day in the year 2020. By and large, most oil imports are supplied as fuel for automobiles. There was a huge decline of about 33% each respectively for petrol and diesel imported in the year 2020 due to travel and transport restrictions caused by the Covid-19 protocols.

The consumption of fuel in monetary values adjusted for trade and transport margin was recorded at Nu 7bn, which was a decrease of about 41% compared to 2019.

Kinley Yonten from Thimphu