Higher fuel prices impacting consumers' spending on health

As fuel prices soar to unprecedented levels in the country, higher expenditure on fuel by consumers is eating into their capacity to spend on health.

Every 10 per cent increase in petrol pump prices leads to a 50-basis point increase in the Consumer Price Index (CPI), said the SBI Ecowrap report.

"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," it said.

The share of non-discretionary spend on items like fuel has jumped to 75 per cent in June from 62 per cent in March 2021.

CPI inflation moderated marginally to 6.26 per cent in June from 6.30 per cent in May. Core also moderated to 6.16 per cent.

The headline inflation was much lower than market expectations and surprised pleasantly on the downside. Food items, especially protein items and oils and fats though are still exhibiting increase in prices in contrast with the global trend. The FAO Food Price Index averaged 124.6 points in June, down 2.5 per cent from May. The decline in June marked first drop in the index following 12 consecutive monthly increases and was brought about by decline in prices of vegetable oils, cereals and, dairy products.

Interestingly, the decline in June inflation print reveals an across the board decline in sequential momentum. Items in core basket having disproportionately larger weights that had exhibited significant jump in prices in May are now back to trend path. Surprisingly most items in food and non-food have registered a de-growth in June, the report said.

"This raises the broader question whether the May'21 inflation print was a data aberration given that most of the country was under the grip of a lockdown in May'21. Interestingly this is all the more possible as core inflation in May'21 has undergone a large downward revision," it said.

Coming to the other major component fuel, the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India, between May and June, the international crude prices went up by $6/bbl. 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 cascading impact on fuel inflation in India. Our calculations show that with every 10% increase in petrol pump prices (Mumbai) there is 50 bps increase in CPI," it said.