Fuel prices are sky rocketing. They are reaching new highs with each passing day. To understand if the fuel costs would come down let’s first look into the sectors that are drastically affected by rising fuel prices. For apart from consumer there are other sectors too that are adversely affected by rising fuel costs.
Affected Sectors
- White goods – These are large household appliances like refrigerators, air coolers. The consumer durable firms that manufacture these goods have to shell off 15-20% of the overall costs for freight cost. Panasonic India, Whirlpool India fall in these categories. Once these firms run out of stock in the inventory, with increased raw material prices the costs are bound to be offloaded on consumers.
- Aviation – Air turbine fuel (ATF) cost costs about 40% of the overall airline expenses. Though competition might stop them from raising ticket costs, rising fuel prices are bound to affect their accounting books.
- Auto – With freight charges increased due to increasing fuel costs auto manufacturers are facing weak demand.
- Logistics – About 13-14% of the production cost is spent on fuel and since 60% of them is through road, this is immediately effected from rising costs.
Repo rated – RBI
Owing to the rising crude oil costs, unequal global economic activity, expected rising raw material costs and household inflation, the RBI had raised repo rates by 25 basis points at 6.5%. And is further expected to hold repo rates in its October meeting.
With high lending rates, spending capacity is severely scrutinized. This is bound to constrain demand and thereby puts a check on the prices.