By The Pulseline News Desk
Sri Lankan motorists are set to feel the immediate impact of another fuel price increase, but the wider economic effects are likely to extend well beyond the filling station, with higher transport costs potentially feeding into the prices of goods, services and everyday household expenses.
The Ceylon Petroleum Corporation (CPC) announced that fuel prices would increase with effect from midnight on September 30, raising the price of 92 Octane petrol by Rs. 15 to Rs. 414 per litre and auto diesel by Rs. 10 to Rs. 392 per litre.
The sharpest increase has been imposed on Super Diesel, which has risen by Rs. 50 to Rs. 528 per litre.
The prices of 95 Octane petrol and kerosene remain unchanged.
The first hit: motorists
For motorists using 92 Octane petrol, the immediate impact is straightforward.
A vehicle consuming 40 litres a month will require an additional Rs. 600 per month at the new price, assuming the same level of consumption.
For a driver using 60 litres, the additional monthly cost would rise to Rs. 900.
For diesel users, the increase is smaller on a per-litre basis but could have a much wider economic impact because diesel is heavily used by commercial transport, buses, trucks, agricultural machinery and other productive activities.
A vehicle consuming 100 litres of diesel a month would face an additional Rs. 1,000 in fuel expenditure.
The impact will vary considerably depending on vehicle type, mileage and monthly consumption.
Why diesel matters beyond the fuel station
The increase in auto diesel is particularly significant because diesel is an input into a large part of the economy.
Goods transported from farms and factories to wholesale markets, and subsequently to shops, depend heavily on road transport.
An increase in diesel prices can therefore increase operating costs for freight companies, distributors and other businesses even where their own direct fuel consumption is relatively small.
The eventual impact on consumers will depend on how much of the additional transport cost businesses pass on through higher prices.
This means the latest fuel revision could gradually work its way into the cost of food, manufactured goods, construction materials and other products transported by road.
Public transport under pressure
Bus operators are also likely to face higher operating costs following the diesel increase.
Whether the additional cost ultimately translates into higher fares will depend on decisions by the relevant authorities and the structure of the public transport system.
For commuters, however, the concern extends beyond bus fares.
Workers who rely on private vehicles, hired transport, three-wheelers or other fuel-dependent modes of transport will also face higher commuting costs.
For households already managing higher living costs, even relatively small increases in daily transport expenditure can accumulate over a month.
Businesses face another cost increase
The latest revision comes at a time when businesses are already operating under pressure from multiple costs, including wages, electricity, logistics, taxes and financing.
Fuel is particularly important because it affects businesses both directly and indirectly.
A delivery company, for example, will pay more to operate its vehicles. A manufacturer may face higher costs for transporting raw materials and finished products. A retailer may face increased distribution expenses even if its own premises consume relatively little fuel.
Small businesses are particularly exposed because they often have less room to absorb additional operating costs.
The key question will therefore be whether businesses absorb the increase, reduce margins, improve efficiency or pass some of the additional cost on to consumers.
The inflation question
Fuel price changes can have a broader effect on inflation because transportation is embedded in the supply chain for many goods and services.
The immediate impact of the latest increase, however, should not be confused with a direct one-for-one increase in the overall cost of living.
The final impact will depend on the extent to which transport costs feed into producer, wholesale and retail prices, as well as how other commodity and operating costs move.
The fact that 95 Octane petrol and kerosene have remained unchanged also means the impact will not be uniform across all consumers.
Super Diesel increase stands out
The Rs. 50 increase in Super Diesel is the most substantial component of the latest revision.
For users consuming 100 litres of Super Diesel a month, the increase would mean an additional Rs. 5,000 in monthly fuel expenditure, assuming consumption remains unchanged.
The impact could be particularly relevant to businesses and vehicle operators that rely on Super Diesel for commercial or higher-performance vehicles.
For these users, the increase could become a more significant component of operating costs than the 92 Octane petrol increase faced by private motorists.
Another test for household budgets
For ordinary households, the impact will ultimately depend on how much fuel they use and how dependent they are on transport.
A household with a private vehicle will feel the increase directly at the pump. A household without a vehicle may feel it indirectly if higher transport and distribution costs result in higher prices for goods and services.
That makes fuel pricing an issue extending beyond motorists.
The latest revision also comes at a time when consumers remain sensitive to changes in essential expenditure. Any further pass-through from transport costs could add pressure to household budgets.
The wider economic impact
The latest CPC decision demonstrates how changes in fuel prices can move through the economy in stages.
First comes the direct impact on motorists and commercial vehicle operators.
Then comes the transport impact, as logistics and passenger transport operators face higher operating costs.
Finally comes the indirect impact, as businesses assess whether those additional costs can be absorbed or need to be passed on to consumers.
How large that third-stage impact becomes will depend on market conditions and the ability of businesses to absorb higher fuel costs.
The latest increase therefore represents more than a change in the price displayed at fuel stations. It is another cost pressure that could spread through the transport network and, potentially, into household budgets and business operating costs.
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