Gas price hikes fuel inflationary fears

Gasoline price hikes are expected to continue as domestic refiners respond to rising world prices for crude, though the longer-term impact for consumers and the economy remains unclear, energy watchers said last week. "For consumers, it means increases in prices but not sooner than a few months after (this month's) surge in prices," said Urszula Cieślak, specialist with Reflex, a Łodz-based oil trading firm. "But still, we're not seeing the beginning of the next oil crisis." The prospect of sustained high gasoline costs raises inflationary and household spending fears among many economists, as faint signs of recovery begin to appear in the economy after its worst slowdown in 10 years.

Analysts look for short-term hikes in gasoline prices, which have risen steadily over the first few months of 2002. Regular and premium gas prices rose by zł. .018 and zł. .015 respectively from Jan. 1-April 4, according to research by Reflex. During that period, the price of Brent crude oil increased from $22 per barrel in January to $26 per barrel by early April; sparked by speculation that the United States may launch an attack on Iraq and by escalating conflict in the Middle East. But market unease reached new highs this year, pushing prices above $27 per barrel, with Iraq's decision last week to shut off exports for a month. Prices recovered slightly in the days following the announcement as nerves cooled due to lack of support for the Iraq initiative among fellow OPEC producers. Reflex's Cieślak characterized the crude hikes as a short-lived "war premium" following the end of $2-$3 per barrel gains picked up after the Easter holidays as violence in the Middle East gathered intensity. "We saw a 40% increase in trade volume in oil just when the prices jumped (prior to Iraq's export shutoff)," Cieślak said. "This shows the increases should not be permanent."

But some analysts said events in the Middle East would make market certaint increasingly hard to come by. "Nobody expected crude oil prices to grow as significantly as this," said Michał Mierzwa, fuel analyst at Erste Securities Polska, which projected an average $19 per-barrel crude price for 2002. Meanwhile, economists look for inflationary pressures to increase, but are unsure how this would effect an economic recovery. "Everything depends on how long this trend in fuel prices will continue ... in the short term it should impact inflation but it's difficult to say on what scale," said Katarzyna Zajdel-Kurowska, head of treasury research at Bank Handlowy (BH). Sustained gasoline prices could threaten to push second-half inflation projections above BH's current 4.5%, as consumers and industry are further pinched by the recently enacted excise tax on energy, Zajdel-Kurowska said. Energy regulators have said that end-users should expect costs to grow no more than 11% this year.