A rise in prices of petrol and diesel also feeds into the prices of other commodities via a cascading effect. Businesses that are unable to pass on these costs will have to take a hit to their profits.
India is a week away from the effective start of its festive season, which will likely see a much-needed consumer spending boom. But the country’s economy faces a serious threat — inflation, especially via the fuel route. A rising trend in international crude prices is only one part of the fuel inflation story as taxes are a big reason behind the current levels of fuel prices. While the situation is already very difficult, any further increase in international crude prices will only make it more precarious. Here are five charts which explain this.
Petrol-diesel prices are disproportionately high compared to crude prices
While Brent crude prices reached $80 per barrel after three years, they have been higher in the past. But petrol-diesel prices were not as high back then. For example, Brent’s crude price was above $100 between February 2011 and September 2014. But petrol-diesel prices were significantly lower than what they are today. The reason why prices are higher at the moment is the increase in the tax component of fuel prices after the Covid-19 pandemic. A comparison of price build-up of petrol-diesel brings this out clearly. The tax component of fuel prices was ₹37.83 and ₹28.06 per liter on 14 March 2020, before the Covid-19 pandemic hit. This is now ₹56.26 and ₹44.77 for petrol and diesel.
(Except for the headline, this story has not been edited by The Finance World staff and is published from a syndicated feed.)
