Oil surge threatens fresh inflation shock as fuel, transport costs loom

Ghana’s recent progress in bringing inflation under control faces a fresh test as the sharp rise in international crude oil prices threatens to push up domestic fuel and transport costs in the coming weeks.

Businesses, households and government are bracing for a possible new round of price pressures after Brent crude climbed above US$100 per barrel during the second week of September, driven by renewed tensions in the Middle East and concerns about the security of global oil supply routes.

Brent settled at US$101.21 per barrel on September 9 and subsequently traded above US$105, reaching almost US$110 intraday on September 11 before retreating.

The immediate concern for Ghana is that the surge occurred after the international price data used to determine petroleum prices for the first pricing window of September had largely been established.

Brent was trading around US$90–US$92 during the period used for the first September pricing window. Consequently, the full impact of the latest increase is more likely to be reflected in the second pricing window, which begins on September 16.

The development could also coincide with a proposed 30 percent increase in commercial transport fares by the Ghana Private Road Transport Union (GPRTU) from September 21, citing rising fuel and other operating costs.

Together, the two developments could create a powerful new inflationary impulse at a time when domestic price pressures had only recently begun to moderate.

Limited room for OMCs

The first September pricing window already reflected mounting pressure from international petroleum prices.

The National Petroleum Authority increased the petrol price floor from GH¢13.92 to GH¢14.53 per litre and the diesel floor from GH¢15.19 to GH¢15.60 per litre.

Government also retained a GH¢2-per-litre reduction in the regulatory margin on diesel in an effort to cushion consumers from rising prices.

Some oil marketing companies initially absorbed part of the cost pressure. GOIL maintained petrol and diesel prices at GH¢15.43 and GH¢17.26 per litre respectively, while Star Oil subsequently moved to similar levels. TotalEnergies was selling petrol at GH¢16.18 and diesel at GH¢17.59 per litre.

The varying prices demonstrate that movements in international crude prices do not immediately translate into identical increases at the pump. Oil marketing companies can temporarily absorb some of the pressure through margins, existing inventories and competitive pricing.

However, this capacity is limited.

Once stocks purchased under earlier price conditions are exhausted and new supplies are acquired at higher international prices, the additional cost is likely to be passed through to consumers unless government intervenes further.

The second September pricing window could therefore prove considerably more challenging.

The Chamber of Petroleum Consumers (COPEC) has already warned that the recent Brent surge is likely to place further upward pressure on domestic fuel prices.

A key factor is the time lag between changes in crude oil prices and their eventual impact on imported refined products, freight and domestic pump prices.

If Brent remains around US$100–US$110 per barrel and the cedi remains broadly stable, petrol and diesel prices could face another significant adjustment in the second September window.

A 5–10 percent increase would place petrol broadly within the GH¢16.20–GH¢17.00 per litre range, while diesel could move towards GH¢18.00–GH¢19.00 per litre, depending on refined-product prices, freight and insurance costs, exchange-rate movements and the willingness of OMCs to compress their margins.

These ranges, however, represent possible scenarios rather than official price forecasts.

Transport could amplify the shock

The more serious risk lies beyond the filling station.

Higher diesel prices feed directly into transport, food distribution, agriculture, manufacturing, mining, construction and retail supply chains.

This creates the conditions for second-round inflation effects, as businesses pass higher production and distribution costs to consumers.

The timing is particularly delicate. Consumer inflation rose to 5.0 percent in August from 4.6 percent in July, reversing the improvement recorded earlier in the disinflation process.

Non-food inflation accelerated to 6.8 percent in August, driven largely by transport and utility costs, suggesting that fuel-related pressures are already becoming increasingly important.

Producer-price inflation had also risen to 4.0 percent in July from 3.5 percent in June, and could face additional upward pressure as higher energy and transport costs work through production chains.

A sharp increase in transport fares could accelerate the transmission of the oil shock across the wider economy.

Higher transport costs would raise the cost of moving workers, goods and agricultural produce, potentially creating a cycle in which rising fuel prices feed into higher fares, distribution costs and consumer prices.

Government faces difficult choices

Government’s immediate challenge is to cushion the most vulnerable sectors without undermining the deregulated petroleum pricing regime or creating an unsustainable fiscal burden.

One option would be to extend or increase the existing diesel intervention. Another would be to target temporary support at public transport, food distribution, agriculture and other productive sectors rather than subsidising all fuel consumption.Authorities could also encourage temporary margin compression by OMCs, although prolonged intervention could affect competition and the financial viability of marketers.

The greater threat, however, is not one expensive pricing window.

A temporary spike in Brent above US$100 may be manageable. But if geopolitical tensions keep international crude prices between US$105 and US$120 for an extended period, the impact could spread steadily from fuel stations into transport fares, food prices, manufacturing costs and household budgets.

For Ghana, therefore, the crucial question is not whether the latest oil shock will affect domestic prices, but how long it lasts.

If the Brent surge proves short-lived, the economy may absorb much of the pressure through stable exchange-rate conditions, existing fuel inventories and limited interventions.

But a prolonged disruption to global oil supply could pose one of the most significant threats yet to Ghana’s hard-won progress in bringing inflation under control.