The price of fuel has always been a concerning issue in the country. When the pricing of Fuel rises, it majorly impacts the lives of the common man and the wholesome economy. And, soon after the latest round of fuel price hike by the OMCs (Oil Marketing Companies), the prices of petrol and diesel increased prominently. And if the prices keep on increasing, the lives of citizens and the economy will be highly affected.
The price of Petrol has reached up to INR 90 per litre and in some places, it has crossed the limit of Rs 100. And The same case with the Diesel too.
The increased fuel pricing has become such a problem that people are even smuggling from neighbouring countries. The rise in fuel price brings a devastating impact on the economy majorly, which is already suffering from the Covid crisis.
The rise in fuel prices affects most transportation industries. Also, businesses depend on logistics and transportation chains.
In this article, we have discussed the effects of increased fuel prices on the economy including other industries and to the lives of common people. Let's get started!
Effects of Increased Fuel Price
When the fuel prices rise, we know businesses and households are affected broadly. However, it impacts majorly through two things- Inflation and reduced economic growth. Let's get started with Inflation first,
In inflation, the products made up of petroleum are affected directly. Moreover, it indirectly affects the industries of manufacturing, heating and transportation. This can lead to an increase in the price of many other products and services.
And according to the increase in fuel price, the consumption price also increases based on the production.
Reduced Economic Growth
The increased price of oil highly affects the economy as well. It reduces the growth of the economy through the demands and merchandise of goods other than fuel. It reduces the demands of those goods because of the increased price of producing them.
How Increased Fuel Prices Affects Other Industries?
As fuel is the basic essential to transportation for every mankind. Therefore, they spend a large fraction of their income on fuel purchasing and due to this, the retailers suffer the most as the discretionary spending's by customers become very low. And if the fuel prices rise, the supplier would deliver its products very rarely to the malls and shopping centres.
And this would highly affect the marketing sector and increase every material's price.
When the fuel prices rise, people often prefer public transportation ridership. Because sharing the transport would cost less compared to driving your own vehicle with so expensive fuel in the tank. This also saves from the wastage of fuel in the traffic and would cost less for people. The usage of public transportation is becoming higher in every place with the increased fuel prices.
Airlines' largest operating cost goes to the fuel expenses which is directly related to oil procurement. When the fuel prices rise, the airlines are affected broadly from the core of their surface.
Therefore, when the fuel prices rise the airlines are compelled to increase the charges on the flight tickets from their customers. This results in fewer airways travelling and a huge burden of expenses for the people.
So when such a scenario happens, the airlines tend to buy or sell the future estimated fuel prices through the investment perspectives. This is called fuel hedging. Besides, this will protect the airlines against the increased fuel prices.
The automobile industry is widely dependent on fuel consumption. These industries would fall apart if the fuel prices keep increasing. That's why the automobile industry put its main focus on the manufacturing of smaller, fuel-efficient vehicles such as electric or hybrid vehicles. These could travel up to 250 miles based on their charging extent.
People have also highly preferred such modification and the purchasing of these vehicles has been increasing over time.
Relationship between Fuel prices and Economy
In the 1970s, the two aforementioned huge fuel shocks were noted based on high unemployment and low growth. This period is also referred to as Stagflation. So it's likely to say that the fuel prices are directly linked to the economy and anything if unusual happens, the economy is affected majorly. The fuel prices cause a wide fluctuation in the economy of the country.
Looking back at history, the 1990s and 2000s were recorded as the most huge economic fluctuation period compared similarly to the fuel shocks of the 70s. The relationship between these two could be very convenient as well as challenging. This widely affected the GDP growth and unemployment rate in the country.
Over a long time, many economists and analysts have debated on the extent of the effect caused by the fuel prices on the economy of the country and the lives of common people. However, with the recorded research and data we can not deny the fact that the spending habits, consumers confidence correlates with the increased fuel prices.
And when the price of fuel increases, the economy including many other industries are affected on a wide scale and results in some absolute alternatives or faces loss. The lives of normal people have affected the most and this benefits some industries as well as cause some major loss to others.
Many surveys have been made on such situations and all those have proved some relation either direct or indirect between the fuel prices and economy of the country.
Which industries are affected by the oil prices?
Airlines, Transportation and Automobiles are some of the most affected sectors by the rising fuel prices.
Why are fuel prices increasing in India?
Fuel prices have been rising in India due to a rise in crude oil prices in the international market.