Economic Association of Zambia president Chrispin Mphuka says the reduction in fuel prices may not have a greater impact on the economy because it is too marginal.
In an interview with News Diggers! yesterday, Dr Mphuka commended government for the reduction but called for regular adjustments on a monthly basis.
“It is difficult to predict if this adjustment in fuel prices will have a positive impact on the economic performance because we don’t know when fuel prices reduce, it is highly unlikely especially when these reductions are very small, prices become what we call ‘sticky’ so to change prices there is a cost and if that cost can’t be recovered from the things that are made out of the exchange rate appreciation, then people will leave prices where they are. And we call those ‘menu course’ so when the factors that are leading to a price reduction are not adequate to reduce the menu course, you find that prices are sticky downward,” Dr Mphuka said.
“So it means fuel prices have been reduced, agent super markets and other dealers may not reduce prices immediately because the reduction is not very significant. So you have that stickiness, it is non responsiveness until when the adjustment is big enough is when you expect people to reduce. So it is highly unlikely that we will see a greater impact on the economy from this marginal reduction. Movement in prices is usually sticky. People don’t normally reduce prices, they are quick to increase prices, but reducing prices you find that even when transporters reduce their prices, you find that the other dealers will use other excuses not to reduce prices, so that always happens and it is because prices are sticky downwards. So the reduction is so marginal, it may not have a greater impact on the economy.”
Dr Mphuka noted that there were so many factors to consider before adjusting fuel prices.
“Unless those who are saying that the reduction is too minimal are privy to the formula that is being used, has the kwacha gained so much by a bigger rate for us to expect a huge adjustment in fuel prices? No one knows. So clearly I think the model which ERB uses to really adjust fuel prices accounts not that to the gaining of the kwacha but also the oil prices on the international market. So we should take into account all those factors. As long as this is an adjustment, I think that is what is important. So if they do another adjustment maybe next month, maybe it will be significant. The idea is this should be done regularly,” said Dr Mphuka.
“We are happy with the principle of adjusting fuel prices on a regular basis because that allows adjustments to filter through the economy. So regular adjustments are what we advocate for and so it is good when government make those adjustments so that we don’t have a miss alignment because of delayed adjustments. So as an association we still strongly urge government that they should be doing these adjustments more often like one in a month because that would be allowing agents to be adjusting as we go on. Of course we think that the adjustment in fuel prices is mainly because of the exchange rate in which the Kwacha has been gaining and also the international oil prices which haven’t changed for months. So that filtered in an economy and we expect a positive adjustment from that perspective. So we welcome the move and we hope that this will be done on a regular basis moving forward.”
