Common crisis: Impact of oil inflation on you
Oil has moved up from $100 a barrel to over $140 in just 115 days. The 40% jump shows an escalation of almost $0.35/barrel per day. Oil Inflation | Biz week in pics
By ET Bureau |
Oil has moved up from $100 a barrel to over $140 (June 27) in just 115 days. The 40% jump shows an escalation of almost $0.35 per barrel per day.
Even as consumers scurry for cover, governments across the world are finding it difficult, even counter-productive, to shield consumers. Apart from ad hoc hikes in the administered prices of petro fuels, India still does not have a policy to respond to rising prices on an ongoing basis, although it imports 70% of its crude oil needs.
Impact on consumer
Retail prices of fuel may have to go up again. Prices were hiked on June 4, after almost four months, against a crude price of $127 per barrel. Crude prices have climbed 10.2% and may touch $150 a barrel. Prices of branded fuel (petrol and diesel, which are not controlled by the govt) could be the first to be hiked.
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Jet fuel prices will go up by around 3% by the end of the month driving up airfares even as industrial fuels like naphtha will move up by almost 4%. Freight costs would go up, leading to an increase in retail prices of fruit, vegetables and other items.
Impact on oil cos
Crude oil���s relentless rise has already undone the oil math rolled out by the govt barely 3 weeks ago. Under-recoveries of oil companies at current prices are close to Rs 200,000 crore after taking into account the price increase and the impact of duty waivers.
Oilcos claim they are losing over Rs 23/litre on diesel and Rs 13.79/litre on petrol. Margins are under pressure and oilcos may have to keep expansion plans on hold.
Impact on economy
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There will be a cascading impact on retail prices of all commodities. The oil import bill would rise substantially (it rose 46% in April).
If the govt chooses to shoulder a larger portion of the rising subsidy burden in the form of yet more oil bonds, public borrowings would rise further, putting upward pressure on prices and inflation just like in the case of a higher fiscal deficit, even if the govt doesn���t count oil bonds as borrowings that constitute fiscal deficit.
The combined result could be to slow down economic growth a tad, particularly if higher oil prices impact global growth as well. Car sales could be hit and new forms of public transport could come up (AC chartered buses, for example) public policy permitting.
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