Manisha Dookhony, Economist: "Towards Rising Inflation and Slowing Growth"

How much can rising fuel prices contribute to inflation?The increase in fuel, gas, and bread prices will create a cascading effect throughout the economy. Diesel, which is used by delivery trucks, construction sites, and freight transport, plays a central role. When diesel prices rise, companies pay more for fuel, which increases their production and delivery costs. These increases are then passed on to the transported goods and the prices in retail stores.Similarly, consumers are also directly affected by rising gasoline prices. Even though some employees receive fuel allowances, these do not fully offset the increased expenses.We are already seeing pressure on households due to the rising price of bread. For a household consuming about ten loaves of bread per day, the monthly budget reaches approximately Rs 1,170. When compared to the minimum wage, this accounts for nearly 6% of their income. Additionally, other increases, such as those in gas and transportation, contribute to inflation and decrease households' disposable income.In stores, there is already a noticeable decline in consumption. People are becoming more cautious or can no longer afford to spend as they did before.Rising inflation indicates slowing growth. Should we expect this scenario?A slowdown in growth is a possible scenario. According to the International Monetary Fund, global growth is projected to decline this year. The Mauritian economy, which is heavily tied to international markets, will not escape this impact. Furthermore, consumption, which accounts for nearly 60% of the country's GDP, is decreasing. This will directly affect economic growth.In recent weeks, consumer associations have called for the removal of taxes on gasoline and diesel to ease household burdens, especially as some countries have already implemented such measures. Should we head in this direction?This is a good idea, but it must be approached with caution. Reducing or eliminating fuel taxes would indeed lower pump prices. However, consumption is already declining, which could impact tax collection and, consequently, state revenues.On the other hand, governments are generally hesitant to revise tax policies before presenting the national budget. Additionally, the executive will seek to maintain a sufficient level of revenue to finance public spending. Furthermore, the Rs 10 billion expected from the Chagos will not be available to support the budget and debt repayment. To reduce the level of indebtedness, it is necessary to mobilize resources to repay part of this debt.