Small and frequent spikes in fuel prices reduce consumption and challenge growth

Frequent increases in fuel prices over the past 10 days undermine the margins of carriers, who will have to pass on the increases to their customers. This, in turn, is set to make the prices of everyday consumables and other goods more expensive, affect consumption, and slow economic growth, carriers and analysts say.

Freight rates on major major routes are up 3-4 percent month-on-month in the past few days, according to the Indian Foundation for Transport Research and Training (IFTRT). These prices are set to rise further if fuel prices continue to rise.

“Continuous price increases in small doses are like ‘a frog in boiling water.’ If this continues, freight rates will reach an all-time high by May,” said Jasjit Sethi, CEO of TCI Supply Chain Solutions.

Sunil Sinha, chief economist at India Ratings & Research, said higher fuel prices would have a cascading effect on economic growth. “The daily increases in prices will affect households’ pockets. They will spend more on fuel and reduce spending on other items. This will affect GDP as consumer demand accounts for 57-58 percent of it.”

Oil marketing companies raised gasoline and diesel prices on Saturday. Rise of 80 baisas per liter brought the total increase in rates in the last 12 days to Rs 7.20 per liter. Petrol in Delhi will now cost Rs 102.61 per liter compared to Rs 101.81 previously, while diesel prices have increased from Rs 93.07 per liter to Rs 93.87.

According to Sinha, the price adjustments that have occurred so far are not enough and more is needed if OMCs are to recover costs. “Even the expectation of another price increase will affect families,” he said, adding that once transportation prices go up, prices will generally go up, including the prices of daily consumables.

While higher fuel prices are part of the story, carriers looking to buy new/old cars will have to gain more. Vinod Agarwal, Managing Director and CEO of Volvo Etcher Commercial Vehicles (VECV), said the creeping increases affected the sentiment of carriers negatively. Truck prices are set to rise across the range this month. Aggarwal said VECV will also raise prices by 200 basis points from Friday.

Dear Reader,

Business Standard has always strived to provide the latest information and commentary on developments that matter to you and that have broader political and economic implications for the country and the world. Your continued encouragement and feedback on how we can improve our offerings has made our determination and our commitment to these ideals even stronger. Even during these challenging times brought about by Covid-19, we continue our commitment to keeping you updated with trusted news, authoritative opinions and insightful commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more, so we can continue to bring you more quality content. Our subscription form has seen an encouraging response from many of you, who have subscribed to our content online. Further subscribing to our online content can only help us achieve our goals of providing better and more relevant content. We believe in free, fair and credible journalism. Your support with more subscriptions can help us practice the journalism we are committed to.

Support quality press and Subscribe to Business Standard.

digital publisher

Leave a Reply

Your email address will not be published. Required fields are marked *