NEW DELHI: Inflation induced by high petrol prices, hovering over Rs 100 per litre, is badly hitting non-discretionary spending as consumers are cutting corners to save on fuel costs.
Latest research by SBI Ecowrap suggests that high fuel prices have altered the spending patterns of consumers.
"Our analysis of SBI card spends indicates that spend on non-discretionary health expenditure has been substantially reduced to accommodate increased expenditure on fuel. In fact, such spending has more than crowded out the spending on other non-discretionary items, like grocery and utility services to such an extent that the demand for such products has significantly declined," Soumya Kanti Ghosh, group chief economic adviser at SBI, observed.
The share of non-discretionary spending on items like fuel, according to SBI's estimates, jumped to 75 per cent in June 2021 from 62 per cent in March 2021. In April-May 2020, the non-discretionary share had reached 84 per cent, data showed.
The high petrol cost is hurting at a time when most households across the country are grappling with medical expenses due to the Covid pandemic and when rising commodity prices upsetting their monthly budget.
"With every 10 per cent increase in petrol pump prices (Mumbai), SBI estimates that there is a 50 basis points (bps) increase in consumer price inflation (CPI)," the report says.
Households have either curtailed their savings or had to dip into their savings to meet expenses to combat this.
"Our estimate indicates that during the second wave period the number of districts with deposits outflows might be double than the first wave," Ghosh added.
According to preliminary estimates by the Reserve Bank of India (RBI), the household financial savings rate in the December 2020 quarter (Q3-FY21) has come down to 8.2 per cent of gross domestic product (GDP) from 21.0 per cent and 10.4 per cent in the previous two quarters.
Going ahead, most analysts expect inflation to remain elevated led by rising fuel prices and firm commodity prices.
"The future outlook hinges on the production increases by OPEC+. The recently cancelled meeting of OPEC+ indicates that we are headed towards elevated levels in Brent and this will have a cascading impact on fuel inflation in India," it said.
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