Higher fuel prices to push up costs of production

The latest fuel price hike will raise production, transport and energy costs across Bangladesh, putting further pressure on businesses, exporters and consumers already facing high inflation and weak demand, business leaders said.

The government yesterday raised the prices of diesel, octane, petrol and kerosene by Tk 20 a litre. The government cited sharply higher international fuel prices and freight costs amid the ongoing Middle East conflict.

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The increase comes as businesses are already dealing with high interest rates, rising logistics costs, energy shortages and weak demand.

“The fuel price hike will push those costs up further and hurt our export competitiveness,” said Shams Mahmud, managing director of Shasha Denims Ltd.

For export-oriented industries, higher fuel prices will add to production costs, particularly for factories that rely on diesel generators during power or gas shortages.

“Energy security has still not been resolved. We are having to use diesel generators, which adds another layer of cost,” Shams said.

He said the impact would also be felt in agriculture, where diesel is widely used for irrigation and transportation, eventually pushing up food production and transport costs.

Anwar-ul Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries, said the increase would raise costs across agriculture, manufacturing and transport.

“Farmers’ costs will rise, which will increase food production costs. Industries will also face higher operating costs, while their capacity to produce and employ people will come under further pressure,” he said.

The higher fuel prices are also expected to add to inflationary pressure as the cost of transporting raw materials, imported goods, agricultural products and export shipments rises.

Parvez said the government should have consulted businesses before announcing such a sharp increase and should have raised prices gradually.

Taskeen Ahmed, president of the Dhaka Chamber of Commerce and Industry, said the private sector was frustrated by the sudden increase.

“We knew the government would eventually raise prices, but the timing and magnitude of the increase are concerning,” he said.

The knitwear sector is particularly exposed because factories often rely on generators during load-shedding. Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association, said the increase would raise both factory and transportation costs.

Factories would face higher costs for transporting fabrics, accessories, imported inputs and export shipments, he said.

“Industries are already going through a difficult period and facing various kinds of crises. At this point, it is not possible for the industry to absorb this additional burden,” Mohammad said.

Shams said higher transport and living costs would also reduce consumers’ disposable income and weaken domestic demand.

“When people have less disposable income, they spend less. That means buying and selling in the market will decline, and the internal economy will also take a hit,” he said.

He also warned that continued energy shortages could create industrial safety risks and raise concerns among international buyers about Bangladesh’s compliance standards.

Shams said the fuel price increase may also be influenced by the government’s efforts to reduce energy subsidies under its IMF programme.

The challenge, he said, is to implement such reforms without further undermining business competitiveness, consumer purchasing power and economic activity.