Fuel price hike; inflationary in short term; beneficial in long term.
Government hiked the prices of petrol by Rs5/litre effective Saturday midnight. While the increase in petrol prices may not have much impact on inflation, the expected hike in other fuels liked diesel is likely to have much bigger impact of 0.7% on inflation. The increase in the price of diesel will even have cascading effect due to rise in the power and freight expenses. We expect the cascading effect to the tune of another 0.6%, taking total impact to 1.3%.
% Rs/ltr % chg Weighted impact (%)
Petrol 1.09 5 11.3 0.1
Diesel 4.67 4 9.0 0.4
LPG* 0.91 25 7.1 0.1
Kerosene 0.74 3 6.8 0.0
Total 7.41 0.7
Note: Except petrol all other poducts prices are assumed prices; * Rs/cylinder
If all price hikes go through, it will help the subsidy burden to reduce by Rs280bn, which we believe is marginally positive in long term for interest rates and liquidity in the system. The government has created provisions of Rs268bn in the budget from subsidies for fuel which we believe are lower by at least Rs500bn at the current fuel prices.
Source: Equity Advisor.
Government hiked the prices of petrol by Rs5/litre effective Saturday midnight. While the increase in petrol prices may not have much impact on inflation, the expected hike in other fuels liked diesel is likely to have much bigger impact of 0.7% on inflation. The increase in the price of diesel will even have cascading effect due to rise in the power and freight expenses. We expect the cascading effect to the tune of another 0.6%, taking total impact to 1.3%.
% Rs/ltr % chg Weighted impact (%)
Petrol 1.09 5 11.3 0.1
Diesel 4.67 4 9.0 0.4
LPG* 0.91 25 7.1 0.1
Kerosene 0.74 3 6.8 0.0
Total 7.41 0.7
Note: Except petrol all other poducts prices are assumed prices; * Rs/cylinder
If all price hikes go through, it will help the subsidy burden to reduce by Rs280bn, which we believe is marginally positive in long term for interest rates and liquidity in the system. The government has created provisions of Rs268bn in the budget from subsidies for fuel which we believe are lower by at least Rs500bn at the current fuel prices.
Source: Equity Advisor.
