Fuel cost hike triggers broad-based price surge

A sharp increase in fuel prices — ranging between Tk15 and Tk20 per litre — has triggered a wave of concern across the economy, with early signs of rising costs already evident in transport, commodities and household expenses.

The impact has been compounded by a steep rise in liquefied petroleum gas (LPG) prices, which have jumped by Tk599 for a 12-kg cylinder within just 17 days. Fears of a possible increase in electricity tariffs have further heightened uncertainty among businesses and consumers alike.

Economists warn that the ripple effects of higher fuel costs are likely to be widespread, affecting industrial production, supply chains and daily living expenses.

Transport costs have already begun to climb, increasing the cost of moving goods, agricultural inputs, construction materials and service delivery.

These additional expenses are gradually being passed on to consumers.

The development comes at a particularly fragile moment for the economy, as incomes for many households remain stagnant or are declining. Rising prices are eroding purchasing power, constraining consumption and adding pressure to an economy that has shown signs of slowing in recent years.

Analysts describe the situation not merely as inflationary pressure, but as a “real income shock”, where rising expenses outpace income growth, steadily lowering living standards. If sustained, this trend could dampen demand and disrupt overall economic stability.

Zahid Hossain, former chief economist of the World Bank’s Dhaka office, described the situation as a classic case of cost-push inflation.

“The government should have made the price adjustment at the beginning of the month,” he said.

He explained that fuel is a fundamental input across nearly all sectors, and any increase inevitably raises production and supply chain costs, which are ultimately borne by consumers through higher prices.

However, he noted that inflationary pressures were already present, driven in part by global market conditions, exchange rate movements and smuggling, leaving the government with limited options.

Even without domestic price adjustments, external factors would likely have continued to push inflation upward.

The transport sector has been among the first to respond. Bus operators in Dhaka have proposed fare increases, with some already charging higher rates.

Transport owners argue that rising fuel costs have significantly increased operating expenses, making fare adjustments unavoidable.

Similarly, trucking and goods transport operators have begun passing on higher costs, now reflected in market prices.

Traders report that wholesale prices of vegetables, fish and meat have already risen, with increases of Tk2 to Tk5 per kilogram observed in some markets.

Essential items such as rice and pulses are also trending upwards, indicating broader inflationary pressure.

Business leaders caution that this may only be the initial phase of a wider cost escalation.

Higher fuel prices are expected to increase expenses across industries, including power generation, raw material transport and product distribution. As a result, production costs are likely to rise further, prompting businesses to adjust prices.

Small and medium-sized enterprises (SMEs) appear particularly vulnerable. Many operate on narrow margins, and further increases in energy and transport costs could threaten their sustainability. Some business owners are already considering scaling back production, a move that could affect employment.

Inflation, currently hovering around 9 per cent according to official data, is expected to intensify.

Low-income households are likely to bear the greatest burden, as they spend a larger proportion of their income on essential goods and services.

For many consumers, the situation is becoming increasingly difficult. Declining real incomes, combined with rising living costs, are forcing households to cut back on spending.

This contraction in consumption could have wider economic consequences, reducing demand, slowing business activity and ultimately dampening growth.

While the reduction of energy subsidies may help ease fiscal pressure, experts emphasise the need for targeted support measures — such as cash transfers, transport subsidies and stronger market oversight — to protect vulnerable groups and maintain economic stability.