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How Higher Oil Prices Can Affect You Even if You Don’t Drive

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You may have noticed that you’re paying more at the pump these days. That’s because crude oil prices have crossed the $80 per barrel mark as on May 17, the highest since November 2014, and up from $50 in June 2017.

But that’s not the only way it can affect you. Here are the ways it can affect you –

Rising grocery bills

Record high prices for diesel means that the cost of transporting goods goes up across the country. In turn, prices of essential commodities like fruit and vegetables as well as other goods increases.

“There could be 4-5% increase in prices across the sector in the next two quarters if crude prices remain at existing levels,” said Saugata Gupta, MD of Marico, the maker of Parachute hair oil and Saffola cooking oil.

Consumer staples are directly affected by crude oil prices because petroleum derivatives are used in packaging material including bottles and tubes. The rise in crude oil prices compounds the effect of higher duties on palm oil, which is used in some food products.

“Rising oil prices impact us directly and definitely puts pressure on profit margins,” Dabur chief financial officer Lalit Malik said. “We are being cautious about pricing and closely monitoring the trend.” He added that his company could absorb higher transportation costs brought on by rising fuel prices.

Interest rates 

Higher inflation may eventually lead the Reserve Bank of India to consider increasing interest rates.

“Therefore, anyone thinking of taking a loan will get affected. Or anyone with an existing debt – might have to shell out more as interest rates rise.

On the positive side, savers will benefit from higher rates from Fixed Deposits & rising bond yields.

Foreign travel, education, trade

This is another indirect impact arising out of high crude oil prices. “As crude oil prices go up, automatically we see pressure on the external account and the (cost of) imports go up, deficit increases and the rupee comes under pressure.

So if someone is planning a holiday or planning to study outside India, the depreciating exchange rate will start showing effect. We have had a strong exchange rate so far but it started depreciating since oil prices started going up,”

Effect on Companies

All companies have to account for oil in one way or another. The higher price of crude and its derivatives may affect profit margins of many companies. The profit margins are impacted due to high oil prices as companies across sectors such as refining, airline, paints, tyres, footwear, lubricants, cement, logistics, construction materials and chemicals for whom crude or its derivatives are major input costs. Hence, the ability of companies to sustain profitability will depend on their capacity to take viable price hikes.

Source: ET, LiveMint, Financial Express

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