Chambers: Fuel price increases 'reasonable' but brace for inflation

The government’s announcement to partially increase fuel prices has brought about mixed views by several business chambers.

The TT Chamber of Industry and Commerce CEO Ian De Souza said via email on Friday that the government’s move was a reasonable compromise.

He explained that with the state of the international markets and the disruptions in the supply of oil arising from the Russia-Ukraine crisis, the government would not be able to absorb the shocks.

“The chamber agrees that for the government to entirely absorb such an unbudgeted fuel subsidy expense would be unreasonable and unsustainable.

“The chamber notes that by increasing the prices of gasoline, kerosene and diesel, the government is passing 50 per cent of what would have been the required subsidy onto the consumer. The chamber is of the view that this is a reasonable compromise in the circumstances,” De Souza explained.

De Souza said the move to leave the subsidies in place for cooking gas will ease the increase in the cost of living, which would be inevitable in the face of the fuel price increases.

The removal of taxes and duties on new and used hybrid motor vehicles, he added, will eventually reduce the one billion litre per annum consumption of fuel and thereby reduce the fuel subsidy expense in due course.

De Souza urged the government to revisit the subsidies and readjust the fuel prices to previous levels once the Russia-Ukraine conflict ceases.

“This would be extremely important, as the increases in the cost of living will reduce disposable incomes and the vulnerable in society will be exposed.

“It would therefore be important that we continue to be mindful of those in the lower income categories who will find it more difficult to make ends meet in the more difficult times that lie ahead,” he said.

Finance Minister Colm Imbert in Parliament on Friday said the 2022 budget was based on an oil price of US$65 per barrel and a natural gas price of US$3.75 per MMbtu.

He said in the first quarter several global concerns pushed Brent oil prices to an average of US$97 per barrel in February and US$106 per barrel in March.

Imbert said, “Any increases in revenue from petroleum as a result of higher-than-expected oil and gas prices, therefore, will be offset by shortfalls in oil and gas production. However, at this time, all things being equal, it is expected that the net effect of increased oil and gas prices and reduced production in fiscal 2022 will be positive.

“By contrast, the situation is not favourable on the expenditure side. One of the adverse effects of the current low levels of oil production and high oil prices is an increase in the fuel subsidy, which must be paid out of tax revenue.”

The Confederation of Regional Business Chambers in a statement on Friday said the fuel price increases will serve a "highly negative deleterious blow" to citizens, businesses and other stakeholders.

It added that businesses were still operating at 35-40 per cent capacity, amid other challenges like increased shipping costs and the shortage of foreign exchange, and raising fuel prices will erode the middle class and create a cadre of poorer people.

“Such a development seems not to be well thought through due to the imminent after-effects of this horrendous policy. The prices of transportation, travel, goods, services, and pharmaceuticals will astronomically increase, putting pressure especially on the working class and single income homes.”

Likewise, president of the Greater San Fernando Area Chamber of Commerce Kiran Singh believes with the price increases the entire society was faced with super inflation.

He said the fuel adjustment was untimely, since the business sector and by extension the country was still recovering from the pandemic which has significantly affected commerce and employment at different levels.

Singh said, “The entire country faces tumultuous times with the projected price increases of vehicle fuel across the board. Transport is one of the driving forces of inflation in any economy. We can expect to see higher costs for delivery of goods in the immediate short term.

“The traveling public will have to pay more to get to their destinations which of course will leave them with less disposable income and lower potential to save for future endeavours.”

He said while an increase in global energy prices will bring increased revenue to TT, it also attracted unaccounted inflation which the economy was not prepared for in the short term.

Additionally, Singh pointed out that both the government and public sector were unable to increase salaries and wages, resulting in less expenditures and investments. Government is currently engaged public sector wage negotiations.

He explained since profit margins were relatively low at the supermarkets and markets there was little room for upward price adjustments and mechanisms must be made for food inflation.

He called for the private and private sectors to work together to generate increased production in the agricultural and husbandry sectors, culture and tourism to generate net foreign exchange.

“It means that the entire society will have to deal with spending less which reverberates into less money for capital expenditure and investment projects to develop the country. We will be in a survival mode as opposed to the expansionary model which we should be engaged in to propel economic growth.

“It is obvious the government is in a precarious position with respect to financing the country's economic future. The chamber is of the view that we must rely on net foreign exchange generators to sustain the economy,” Singh said.