Crude oil prices have crossed the $80 per barrel mark as on May 17, the highest since November 2014, and up from $50 in June 2017. Not surprisingly, since June 2017, prices of fuel like petrol and diesel, that are directly linked to crude oil prices, are being revised on a daily basis. While there was a pause in these revisions during the recent assembly elections in Karnataka, they have resumed thereafter.
With the daily revision in prices, you might not always notice that your monthly fuel outgo is on the rise. But over time, this could dent your budget by not only increasing your outgo for fuel but also essential commodities and other goods, apart from making foreign trips and loans costlier. Here are four things which can become costlier for you.
A direct impact of rising diesel and petrol prices is increase in what you spend on fuel every month for the same amount of travel. Back-of-the-envelope calculations show that a person driving 900 km a month in Mumbai could see her monthly fuel bills in May 2018 go up by about Rs1,250 for a petrol car and Rs1,000 for a diesel car, compared to May 2016. Delhi commuters too take a hit.
Unfortunately, this is a cost you can’t do much about. “If a person is accustomed to travelling to office by car, just because her monthly bill has gone up by Rs2,000, this person is not going to switch to public transport. The only thing that can be reduced is weekend driving to some extent," said Suresh Sadagopan, certified financial planner and founder of Ladder 7 Financial Advisory.
Madan Sabnavis, chief economist at CARE Ratings, said high fuel prices over a prolonged period may force households to reallocate resources. “If I have to increase a certain amount on fuel, then either I will be saving less or I will have to cut down on other expenses. So if the higher prices remain for a long time, it could affect demand for other products or reduce savings," he said.
Essential commodities and goods
Record high prices for diesel means that the cost of transporting goods goes up across the country. In turn, prices of essential commodities like fruit and vegetables as well as other goods increases.
“If the higher price lasts long then it will have an inflationary effect. They can absorb it to some extent but cannot be doing it constantly. This time, petrol and diesel prices have risen quite a bit at the consumer level," said Crisil chief economist Dharmakirti Joshi.
Higher inflation may eventually lead the Reserve Bank of India to consider increasing interest rates. “Therefore, anyone thinking of taking a loan will get affected. On the positive side, savers will benefit from higher rates," Sabnavis said.
Foreign travel, education, trade
This is another indirect impact arising out of high crude oil prices. “As crude oil prices go up, automatically we see pressure on the external account and the (cost of) imports go up, deficit increases and the rupee comes under pressure. So if someone is planning a holiday or planning to study outside India, the depreciating exchange rate will start showing effect. We have had a strong exchange rate so far but it started depreciating since oil prices started going up," Sabnavis said.
This will also impact those with a business that has dealings in foreign currency.
It’s better to get ready for the impact and rejig your finances as the government has limited options to prevent retail fuel prices from going up if crude oil prices are on the rise or the rupee continues to depreciate.