News
More pain awaits Sri Lankans at the grocery and at the pump
Sri Lankans beaten down by unprecedented multiple economic calamities caused by state failures, including simultaneous electricity and fuel woes, can expect to pay much more for their bread, roti, rice, cooking gas, and fuel in the wake of heavy price volatility in global commodities markets.
Prices Sri Lankans pay at the grocery shops and wet markets are expected to catapult in tandem with rising global inflation and supply disruptions. Inflation is largely impacted by energy prices. Food prices also play a role. The Central Bank of Sri Lanka governor Ajith Nivard Cabraal, has already lost control of inflation.
Gold purchases will cost more, per troy ounce, while bankers stand to rake it in from gold pawned by the poor. In Asia trade, spot gold jumped by 0.78% Friday, to US$ 1,917.93 (Rs 387,487.60, at an exchange rate of Rs 202.03 per greenback). But, U.S. gold futures retreated by more than 2% to US$ 1,888.40 and spot gold fell by 1% to US$ 1,884.69 per ounce.
Wheat and rice are among nearly bankrupt Sri Lanka’s top 25 imports along with fuel. In 2021, wheat shipments cost US$ 418 million, while fuel cost US$ 3.74 billion. In October, the indebted Ceylon Petroleum Corporation paid US$ 74.88 per barrel on term contract price for fuel imports.
In Asia, on Friday, crude oil prices jumped by more than 2%. U.S. West Texas Intermediate crude futures climbed by 2.51% at US$95.14 per barrel, while the widely-used benchmark Brent crude gained by 2.86% to US$101.91, data from financial news providers show. On Thursday, Brent jumped above US$105 a barrel for the first time since 2014.
David Rees, Schroders, Senior Emerging Markets Economist, predicts crude will sprint to US$120.
“When we last published global forecasts in November, we had an oil price shock scenario at around US$100, but we might have to go back to the drawing board now with our new forecasts. US$120 might be the new scenario, but it could rise even further, and it will have a bigger impact on growth. We need to wait and see how the dust settles on this, markets are volatile and uncertainty extremely high,’’ Rees said in a research note, Friday.
Tom Wilson, Head of Emerging Market Equities at Schroders, said Friday, that sanctions against Russia, which impact trade, “may result in higher global commodity prices, which would be stagflationary and cause economic pain’’.
Capital Economics predicts oil at US$140 a barrel.
IMF head Kristalina Georgieva tweeted that the “conflict poses major risks to the region & the world—we are assessing the potential impact on the financial system, commodity markets and countries with direct ties’’.
Tanker rates are heading higher. April to June very large crude carrier oil tanker futures prices have jumped by 23% to Worldscale 46 (a nominal freight scale used to calculate oil freight rates) on important routes such as the Mideast Gulf to Asia-Pacific.
Wheat futures eased from a high. The wheat contract for May at the Chicago Board of Trade gave up 3.7% at US$9.00-1/2 a bushel down from US$9.60-3/4 earlier, at its highest since June 2008.
Galloping freight costs for imports will add more sting at the retail cash register.
Exporters will also feel the pain. A calculation on Freightos for a full 20-foot container load from Colombo to Hamburg, Germany, shows it could cost up to US$9,424, excluding a multitude of other related costs.
Base metals prices have risen and costs of imported intermediate goods will head higher.
Financial conditions are expected to tighten when the US Federal Reserve begins to raise the benchmark rate in March. A rise of at least 50 basis points is on the cards.
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