Steadily rising prices for automotive fuels (gasoline and diesel) have not only fueled inflationary concerns in recent months, but also changed consumer spending patterns. A recent report from the economic wing of the State Bank of India (SBI) suggests that, as consumers spend more on fuel, it crowds out healthcare spending.
“Our analysis of SBI card spending indicates that non-discretionary healthcare spending has been significantly reduced to account for increased fuel spending. In fact, this spending more than crowded out spending on other non-discretionary items, such as grocery and utilities, to such an extent that demand for these products declined dramatically, ”Dr. Soumya Kanti Ghosh, group chief economic adviser at SBI in a note dated July 13.
The share of non-discretionary spending on items like fuel, according to SBI estimates, rose to 75% in June 2021 from 62% in March 2021. By April-May 2020, the non-discretionary share had reached 84%. data exposure.
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The impact of rising gasoline and diesel prices comes at a time when most households across the country are grappling with higher medical expenses due to the Covid pandemic and rising costs. commodity prices which disrupt their monthly budget. As a result, households either reduced their savings or had to dip into their savings to meet their expenses.
According to preliminary estimates from the Reserve Bank of India (RBI), the household financial savings rate in the December 2020 quarter (Q3-FY21) fell to 8.2% of gross domestic product (GDP), from 21.0% and 10.4%. cent in the previous two quarters.
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For India, rising crude oil prices have posed challenges for the government as it tries to balance the need for additional revenue from high excise taxes with rising fuel inflation and its impact. on headline inflation.
Over the past year, Brent crude oil prices have jumped over 76% to reach $ 75.35 a barrel now. The basket of Indian crude oil has jumped nearly 32% so far in 2021 to reach $ 71.63 a barrel now. In recent weeks, oil prices have passed the Rs 100 per liter mark in several cities across the country.
With every 10 percent increase in gasoline prices at the pump (Mumbai), the SBI estimates that there is a 50 basis point (bp) increase in consumer price inflation (CPI) .
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“Fuel component inflation rose 12.7% in June’21 compared to 0.5% growth in June’20. Rising global energy prices coupled with high internal taxes have pushed fuel prices up. Rising fuel prices have resulted in increased transportation costs that feed into all segments, ”said Madan Sabnavis, chief economist at CARE Ratings.
Looking ahead, most analysts expect inflation to remain high due to rising fuel prices and firm commodity prices. Those at Nomura, for example, expect headline inflation to average around 6-6.3% in the third quarter of 2021 (July to September) – above the RBI’s upper comfort limit of 6% – followed by moderation to around 5.2-5.5%. in Q4 (October – December) due to base effects, before rising to 6.2-6.5% in Q1-2022 (January – March).