Your household budget just took another hit

Last Updated: Tue, Sep 18, 2012 19:42 hrs

The stock markets are cheering the government’s reformist mood. But for consumers, this festival season has just become a tad more expensive.

The Union government’s reforms – an increase of Rs 5 a litre in diesel prices and capping of subsidised LPG to a consumer at six cylinders a year – will upset many household budgets. A family of four using nine cylinders a year will see an increase in budget by a little over Rs 1,000 annually.

If you own a diesel car, your monthly budget has taken an additional hit of Rs 700-800. And then, there are grocery bills which are sure to shoot up in the festival season. Now, the diesel price rise will increase the bills further because of higher freight costs.

While the transporters Business Standard spoke to, said that they will take a call today on the hike, one should just expect things to become more expensive, at least in the short run. And in a year, when salaries have been frozen or seen minor increases, bonuses are tough to come by and there is a fear of job security, the hapless consumer will take another hit on their finances.

According to Madan Sabnavis, chief economist, CARE Ratings, the extent of the impact will depend on the usage of people, about 44 per cent of the total domestic LPG consumers, who consume six cylinders or less per annum, and will not be affected by this decision.

Diesel prices have been increased by Rs 5 per litre. Say your diesel car has a mileage of 12 km per litre and you travel around 54 km a day (not including Sundays). Before the hike in a month (if you only take diesel consumption to office) at Rs 46.25, you were spending Rs 5,203. Now at Rs 52.45, you will be spending Rs 5,900, a 13 per cent increase. And, this is just the fuel consumption to go to office. We have not taken into consideration miscellaneous consumption such as weekend breaks or trips to the market.

Besides, since diesel cars cost more than petrol cars, those who own luxury or high-end cars that use branded diesel will feel the pinch a little bit more than mass market diesel car owners, says Sumit Bali, director, Kotak Mahindra Prime.

Prices of essential commodities will go up because of the second round effect of the rise in diesel, says D K Joshi, chief economist, CRISIL. “While it is difficult to say how much the prices of essential commodities will go up, there will be some impact because transporters will raise charges following the hike in diesel prices. This will push up the cost of living in the short term,” he says.

What could come as a relief is that transport charges could see a lower increase. “Right now, transporters’ ability to pass on the entire cost to consumers is weak because the economy is not doing well,” Joshi says.

Though the prices of vegetables, fruits and edible oils have not increased yet, they will very soon. D G Makode, deputy secretary, Vashi APMC Fruit Market, says transportation charges will increase by October 1, after which the prices of fruits will see a rise. He, however, was not able to give a percentage rise that will happen due to the rise in transportation costs.

Avinash Patil, deputy secretary, vegetables, APMC, says how much the retail prices of vegetables will go up due to the diesel price hike will depend on the area. For instance, prices may be higher in south Mumbai compared to Dadar or Santa Cruz, since it will cost more to transport vegetables to south Mumbai.

So, you have been careful with your spending. Continue to do so. Buy in bulk at the start of the month and continue with the down trading. These small measure which have been helping you cut corners over the last few months, will continue to do so in times to come. As it looks like high inflation is here to stay, well, at least for the time being.

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