Household budgets: Tighten your purse strings as prices likely to go up

On Wednesday, petrol and diesel consumers would have heaved a sigh of relief when Indian Oil Corporation’s website showed that their prices were being brought down by 60 paise a litre. But their euphoria proved short-lived, as the company changed its rates shortly. The new prices reduced the benefit to just 1 paisa a litre. 

Except for a two-week hiatus during the Karnataka elections, petrol and diesel prices have been on the boil. In the past one year, petrol prices in Delhi and Mumbai are up 20 per cent and 16 per cent while diesel has risen 20 per cent and 24 per cent. While this will be the direct impact on your transportation cost, the rise in oil prices will also affect households in a variety of other ways. 

This price rise has started affecting the price of fruits and vegetables. Mumbai-based Ishwari Patel has seen her grocery bill shoot up eight-10 per cent over the past few months. “From a monthly spend of around Rs 5,300-5,500 on milk, vegetable and fruits, we now end up spending around Rs 5,800-6,000,” says Patel. In April, the CPI rose 4.58 per cent. According to Crisil the price of  palm oil, which constitutes 40 per cent of edible oil sales, is set to rise 18-20 per cent this year. 

Prices of many white goods have already been hiked. Since September, prices of television, air-conditioners and refrigerators have gone up by four-five per cent. Another two-three per cent rise is expected from June, say industry players. Sunil D’Souza, managing director, Whirlpool of India, says prices may have to be increased soon as critical components like compressors and others that are imported have risen by five-six per cent due to a falling rupee. “The short supply of domestic steel and rising price of plastics due to increasing crude oil price is a challenge. Surging fuel costs also push up logistics costs,” he says.

Prices of juices (made with imported fruit concentrates) are up one-two per cent. Value-added milk-based products like ice creams, dairy beverages and baby food may see a price hike of two-four per cent. Says Suresh Narayanan, chairman and managing director, Nestle India: “If the trend of weakening rupee and rising crude continues, we will have to manage our costs better.” Prices of many grocery items, where crude derivatives are a substantial input in packaging material, are expected to rise by four-seven per cent.

Even carmakers may hike prices owing to rising input costs. Reports suggest that Maruti Suzuki plans to increase rates by 1.9 per cent, while Hyundai Motor India plans to raise prices of all its models (except SUV Creta) by two per cent. Other carmakers may follow suit. Among airlines, Indigo has raised prices by Rs 200 for shorter destinations and Rs 400 for longer destinations. 

Oil may continue to be on the boil: Rise in crude oil prices so far was the result of production cuts by the major oil-producing countries, sanctions on Iran, and turmoil in Venezuela. In India, problems get accentuated due to high taxes on petrol and diesel. According to experts, the period of low oil prices seems to be over – at least for 2018. “Oil prices are likely to remain volatile, and may even spike should risks escalate. The price of crude (Brent) is likely to average $70-72 per barrel for this year,” says Abheek Barua, chief economist, HDFC Bank. 

Navneet Damani, AVP-research, Motilal Oswal Commodities feels that the meeting between OPEC nations and Russia on June 22 will decide future prices. “If they decide to increase production, that will reduce the pressure on prices,” he says. 

Tighten your belt:  Start monitoring your household expenses. Only if you do so will you know the areas in which your budget is getting hit. Next, tweak your budget. Some areas, such as transportation and food, may require higher allocation while you may have to cut down on discretionary expenses. Create a contingency fund -- a sum that can be used to deal with price rise in unanticipated areas. You may also have to down trade, which means that you consume the same goods but of less expensive brands. Other options would be to look for discounts and buy in bulk.

In a rising inflation scenario, both debt and equities are hit. Higher interest rates appear good for fixed-income investors, though their real returns may go down. But debt fund investors lose out because of falling NAVs. “Returns of equities will also get hit as higher cost of capital takes a toll on earnings,” says financial planner Arnav Pandya.