If you've recently winced at the price of your whey protein tub, you're not alone. Global shipping bottlenecks caused by the US-Israel war are partly responsible for the hike in prices of protein supplements. And it’s one of the many second-order effects of war that will start showing up in household budgets.
As a fallout of the war, the government increased petrol and diesel prices by about ₹7.5 per litre since 15 May, when they were hiked for the first time in four years. Consumers can feel the pinch of higher fuel prices directly, but the real squeeze will come from other places as well over the next six to nine months.
The impact of expensive fuel extends to the truck that carries vegetables from the farm, the school van your child uses and the factories that manufacture everyday goods. When fuel costs rise, so does the cost of moving anything from one place to another. Madan Sabnavis, chief economist at Bank of Baroda, said transport costs could go up by 3-3.5%. That increase gets folded into the prices of products by the time they reach you.
Crude oil is also a raw material for fertilisers, chemicals, paint and plastics. Many manufactured goods that households consume every day are touched by crude oil at some point in production. When crude oil gets expensive, production costs rise across industries, and those costs eventually show up in retail prices.
"It is going to be a generalized kind of higher cost of living for everyone," said Sabnavis. "What you will feel individually may be more than the 4-5% number that the CPI (consumer price index) delivers."
Dhirendra Kumar, founder and CEO of Value Research, explained that within two quarters of a fuel price increase, the effect starts showing up in grocery bills, school transport charges and electricity tariffs.
Weaker rupee
The second hit comes through currency depreciation. India imports over 85% of its crude oil, which means a higher oil bill drains dollars and weakens the rupee. Edible oil, electronics, pharma raw materials and fertilizers all get more expensive through this channel, Kumar said.
Apart from cost-of-living inflation, the impact could also be felt by borrowers. When inflation accelerates and the rupee comes under pressure, the Reserve Bank of India is unlikely to cut interest rates. Over the last year, the central bank has cut the repo rate by 1.25 percentage points, bringing it down to 5.25%, but it's unlikely to continue further. This would mean that your home loan or car loan interest won’t get cheaper.
While the second-order impact of the ongoing crisis concerns the overall cost of living, the third-order impact extends to your income growth, according to Kumar. For a salaried household, costs are likely to outrun income over the next six to nine months. This means the nominal salary will not change, but in real terms, after accounting for what things actually cost, purchasing power will shrink.
Sabnavis points to smaller businesses as particularly vulnerable. Companies in the micro, small and medium enterprises (MSME) sector, which supply components or finished goods to larger corporations, often cannot pass on higher costs to their buyers. When margins shrink, the most common response is to slow hiring and keep increment budgets tight.
"The smaller units will continue to be under pressure on account of higher costs," Sabnavis said.
He noted that when certain sectors face cost stress, the effects ripple into employment at the smaller end.
"It could be affecting the job market. I won't dramatize it by saying it's a big issue, but it could be a concern in certain pockets," he said.
Kumar added that their impact on income growth and thinned-out variable payouts will be visible in the next appraisal cycle, essentially by next year.
How to prepare
To prepare for such uncertainty, experts advise making a few targeted adjustments before the pressure fully arrives.
The first priority should be to build and protect liquidity, as per Manikaran Singal, director of Good Moneying Financial Planners. This would include not rushing to repay home loans or making big investments even if they look mathematically correct.
“It’s crucial to preserve access to cash right now. I have seen cases where individuals used severance payouts to prepay loans for psychological comfort, only to struggle later when job recovery took much longer than expected. Without liquidity, they were forced to redeem long-term investments meant for future goals just to meet routine expenses,” Singal said.
“Continuing with manageable EMIs would be a better cash-flow decision. Once there is better visibility over the next few months, one can reassess whether surplus should go towards higher investments or loan prepayment.”
One should also calibrate spending. Experts suggest thinking about monthly outflows in three broad categories:
Essential: The non-negotiables of groceries, school fees, insurance premium, medicines, rent or home loan EMI and utilities. These stay as they are.
Comfort: As per Ajay Pruthi, founder of PLNR Investment Advisors, these expenses genuinely support daily functioning – domestic help, basic broadband, a gym membership that is actually used, and the occasional premium cab ride when you're exhausted after a 10 pm meeting.
“These expenses protect your time, health and keep you functional enough to earn well. These are worth keeping,” Pruthi said.
Luxury: Multiple food-delivery orders a week, several streaming subscriptions, premium dining, gadget upgrades or personal loan for an international vacation – these are luxuries to cut down or postpone. However, the objective is not to cut all of this out entirely, as per experts. Pruthi suggests keeping one streaming service instead of four, a road trip to a nearby destination instead of an international holiday, cooking at home more often instead of ordering in every day.
“The quality of life will not be compromised drastically while the monthly outflow drops meaningfully,” he said.
“The objective is to preserve flexibility. If a planned expense materially weakens your liquidity buffer, it may be worth postponing temporarily. Think of it as being more intentional with cash flow rather than reacting out of fear,” Singal added.
Where to invest
Every time a crisis hits, the instinct for most investors is to do something—sell, shift or wait on the sidelines. Kumar’s core message is to hold steady.
"For a long-term investor, almost nothing should change," he said. "Through every crisis – from the dotcom bust to covid to the Ukraine war – acting on the news costs more than sitting through it. Investors who sold lost twice – they sold low and missed the recovery."
Experts advise continuing systematic investment plans, maintaining asset allocation and resisting sector tilts based on the news. If someone is sitting on a lump sum to invest in equity, it’s better to deploy it slowly through systematic transfer plans.
Sabnavis said this situation is not permanent.
“Wars tend to create a new equilibrium over time. Alternative supply chains develop, energy sources diversify and price levels eventually stabilize at a new point. The painful period is the transition, and that is what households need to plan for right now,” Sabnavis said.