International prices of oil and domestic ones
Sunday, 14 December 2008
High procurement costs in international markets are often cited as one of the major reasons for rising prices of commodities sold in local markets when the global markets remain overheated. But free market principles do also in no way justify prices of goods at artificially inflated levels when there is a decrease of such prices in the international markets. But this is found to be the case, more often than not, in Bangladesh. Thus, the domestic inflationary situation has now changed not much, though most commodities in the global markets have declined in prices. Time-lag factor for the domestic price-level to reflect the prevailing global commodity prices is understandable. But this time-period does not end in Bangladesh. Moreover, we hardly find the same time-lag factor working when global high prices 'trigger off' domestic inflationary pressures almost immediately. Something is somewhere wrong with our markets or, at least, the way they function.
In this backdrop, the government can take the lead in removing the causes of market imperfections and set the example about proper domestic market response, though policy measures, to the global price situation. The price of fuel oils may be cited here. The prices of the same are fixed by the government because importing and distribution of these oils are entirely government-managed operations.
Government adjusted upward fuel oil prices several times over the recent years and the last such upward revision was a particularly big one -- some 40 per cent rise in prices on average across the board. Thus, the per litre price of octane leapt up to Taka 90 per litre from Taka 67. The prices of diesel and kerosene also recorded a substantial rise. Following that, there has been some downward adjustment in administered prices of fuels, in one occasion, following the recent decline in the prices thereof in the global market. But such an adjustment has not been matching the drop of oil prices in the global market. International oil prices have, meanwhile, dropped sharply again but downward adjustments in local administered oil prices are still awaited. Some more time will be required for the government to act upon. This is not welcome.
Large amounts of subsidies that the government has to bear for importing the fuel when prices escalate in international markets is the main reason for upping of the fuel oil prices. But when such subsidies are not required for reasons of decline in fuel import prices, the rationale for keeping the administered prices at much higher the imported costs is obviously weakened. The government should then effectively cut such administered prices. In this context, a token downward readjustment of fuel oil prices in the local markets following a drastic drop in global oil prices, should not befool anyone.
Since the time of last downward adjustment of domestic fuel prices, the price of oil has slid to much below $50 a barrel, amid the prospect of a further slide. But the government in Bangladesh is not passing the benefit of this unprecedented decline in fuel oil prices to the Bangladeshi consumers. The special assistant to the Chief Adviser (CA) on energy has tentatively disclosed that another slashing of the oil price is being considered. But will such a decision be shelved on the plea of the election and be left to a new elected government? But that would be too long. Government must decrease oil price now and, to do justice, reduce it by a substantial margin, say, by 30 or 40 per cent.
Mahmud Rashid
Kakrail, Dhaka
In this backdrop, the government can take the lead in removing the causes of market imperfections and set the example about proper domestic market response, though policy measures, to the global price situation. The price of fuel oils may be cited here. The prices of the same are fixed by the government because importing and distribution of these oils are entirely government-managed operations.
Government adjusted upward fuel oil prices several times over the recent years and the last such upward revision was a particularly big one -- some 40 per cent rise in prices on average across the board. Thus, the per litre price of octane leapt up to Taka 90 per litre from Taka 67. The prices of diesel and kerosene also recorded a substantial rise. Following that, there has been some downward adjustment in administered prices of fuels, in one occasion, following the recent decline in the prices thereof in the global market. But such an adjustment has not been matching the drop of oil prices in the global market. International oil prices have, meanwhile, dropped sharply again but downward adjustments in local administered oil prices are still awaited. Some more time will be required for the government to act upon. This is not welcome.
Large amounts of subsidies that the government has to bear for importing the fuel when prices escalate in international markets is the main reason for upping of the fuel oil prices. But when such subsidies are not required for reasons of decline in fuel import prices, the rationale for keeping the administered prices at much higher the imported costs is obviously weakened. The government should then effectively cut such administered prices. In this context, a token downward readjustment of fuel oil prices in the local markets following a drastic drop in global oil prices, should not befool anyone.
Since the time of last downward adjustment of domestic fuel prices, the price of oil has slid to much below $50 a barrel, amid the prospect of a further slide. But the government in Bangladesh is not passing the benefit of this unprecedented decline in fuel oil prices to the Bangladeshi consumers. The special assistant to the Chief Adviser (CA) on energy has tentatively disclosed that another slashing of the oil price is being considered. But will such a decision be shelved on the plea of the election and be left to a new elected government? But that would be too long. Government must decrease oil price now and, to do justice, reduce it by a substantial margin, say, by 30 or 40 per cent.
Mahmud Rashid
Kakrail, Dhaka