DOHA: The impact of recent hike in diesel prices on consumer price inflation will be minor and a temporary phenomenon, the Ministry of Development Planning and Statistics said yesterday.
The weight of diesel in the consumer price index (CPI) is very small.
As most private vehicles use petrol, the effect will be minor and short-lived, the ministry’s latest edition of Economic Outlook said.
Qatar Fuel (Wooqod) increased the retail price of diesel to QR1.5 a litre from QR1 on May 1.
It also raised the bulk price for projects of to local companies and joint ventures to QR1.5 and QR1.8, respectively.
Companies not based in Qatar continues to pay QR1.
The report said as diesel represents a “one-step upward shift in the price level, its direct impact on inflation will be confined to the remainder of 2014 and the first five months in 2015 due to the resulting base effect.
“The direct base effect is also expected to be minor, as the weight of diesel fuel in CPI is small”.
However, an increase in diesel prices may have knock-on or indirect impacts on the prices of consumer goods through its effect on costs, though the impact is also likely to be small.
Many consumer goods are imported, and the physical size of the country means that goods are not transported over long distances by road.
The price hike may prompt some companies to abuse their market power — using it as an excuse to raise the price of final goods and services — but the government will be vigilant over unscrupulous practices.
The report said the view is supported by earlier experience: Although prices were raised in January 2011 — diesel by 30 percent and petrol by 25 percent — and despite the direct impact of petrol prices on consumers, consumer price inflation stayed under 2 percent in 2011 and 2012.
According to the ministry’s research note, annual inflation, as measured by the change in CPI, is expected to average 3 percent in 2014 and to increase to 3.4 percent in 2015.
Over the rest of 2014 and through 2015, domestic inflationary pressures are projected to gradually build as domestic demand strengthens.
Vigorous growth of domestic demand will push up prices of non-tradable goods and services, including rentals, especially in affordable housing for low- to middle-income markets where availability is usually tighter.
Conversely, global food and commodity prices are expected to moderate, while inflation in trading-partner countries should stay dormant.
Risks of accelerating inflation seem contained at the moment, but consumer price pressures would pick up if imported inflation gathered pace.
Global commodity supply shock, depreciation of the dollar or unanticipated global demand recovery could take inflation up a notch.
The Peninsula
