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Tuesday, Nov 30, 2021
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Fuel Prices Rise Again. How Does It Affect Your Finances?

Diesel prices have been consistently going up and in the last 14 days. Over this period, diesel prices have gone up by Rs 3.15 per litre in Delhi.

Fuel Prices Rise Again. How Does It Affect Your Finances?
Fuel Prices Rise Again. How Does It Affect Your Finances?
outlookindia.com
2021-10-07T11:18:23+05:30

Petrol and diesel prices have been hiked for the third day in a row. According to the Indian Oil Corporation, in Delhi, the current petrol price increased by 30 paise to Rs 103.34 per litre from Rs 102.94 per litre the previous day, while in Mumbai it is Rs 109.25 per litre, as on October 7. The diesel prices in Delhi and Mumbai are at Rs 91.77 and Rs 99.55, respectively, as on October 7.

This has been a result of a rise global benchmark crude oil prices. The price of Brent crude had hit a high of $83.47 per barrel before dropping and settling at $81.08 a barrel on October 6.

Diesel prices have been consistently going up and in the last 14 days. Over this period, diesel prices have gone up by Rs 3.15 per litre in Delhi. Over the last 10 days, petrol prices in Delhi have risen by Rs 2.05 per litre.

Higher petrol prices directly lead to higher fuel bills. Let’s say, you cover a total distance of 1,500 km per month, including your office and leisure commutes. Assuming that your car gives you a mileage of 18 km per litre, you would require about 83 litres of petrol every month. A Rs 2 per litre rise would mean your monthly petrol bills would go up by about Rs 166. While the daily rise in petrol or diesel prices may not seem much, over a period of time, your fuel bills could go up substantially. Also, a rise in fuel prices may eventually lead to higher public transport fares.

That’s the direct hit that your finances will take but the rise in fuel prices affects you in more ways than one. Here are some of the other things that will become expensive and hit your overall monthly budget.

Price of essential goods go up

A lot of essential goods, including fruits and vegetables, are transported across the country. With diesel prices going up, the transportation costs go up and, hence, the prices of these items also go up. Over a period of time, this would lead to an increase in your monthly budget, something we have all experienced in the past few months.

Increase in the cost of borrowing

“The rise in fuel prices has a cascading effect on businesses spread across various sectors which ultimately impacts citizens. Cost of living increases which eventually leads to rising inflation,” says Anant Ladha, founder, Invest Aaj For Kal, a financial planning firm.

To control higher inflation, the Reserve Bank of India takes the path of increasing interest rates. Although rates are at an all-time low at present, the US central bank, the Federal Reserve, has signalled an increase in interest rates in 2023 and this will have an impact on interest rates in India in the long run.

“Presently the US yields are at the lowest level to support the economy during difficult times. But US Fed said that they can taper rates slowly in the coming years. Once rates start increasing, inflation can cause interest rates to rise even quicker in India if it is not taken care of,” says Ladha.

As inflation increases, the cost of borrowing and the cost of capital will automatically tend to increase, which can have a long-term impact as well, he says.

Depreciating rupee

Rising fuel prices also increases import pressures for the government. This leads deficits to go up, which eventually leads to a fall in value of the rupee. Once the value of rupee falls against the dollar, prices of foreign travel and foreign education goes up.

“Rupee fluctuation depends on several factors including capital flows. Rising crude prices could increase the current account deficit and put pressure on the rupee,” says DK Joshi, chief economist at CRISIL.

Since Indian fuel prices are now linked to international prices, a rise in fuel prices will impact your finances in many ways.

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