The Diesel Price hikes seem to be working. Consumption has fallen as prices have gone up this year, and the year-to-date consumption is now about 0.3% below last year. This is around the lowest growth in 8 years!
Remember Diesel prices have been increased in big chunks after long periods until Jan 2013, when the increase was Rs. 0.50 per liter per month or such.
Source: IOCL for prices (ex-Delhi), PPAC for consumption.
You can see here that consumption seems to slow down in terms of growth as prices go up. We’re currently going through the first negative growth since 2005.
Note that I have used Year-to-Date (YTD) values of “April to Month” which tells us cumulative numbers. The cumulation is like a moving average, in that it smoothens out the numbers, but then it’s not highly accute. The original year on year figure is very seasonal and thus, very volatile. You can see that graph:
Petrol Too Shows The Link Over Longer Time
Petrol prices have been decontrolled even earlier and sharp increases in price have resulted in a fall in consumption.
While petrol prices are flat, current diesel prices are 14% greater than last year. We need to keep raising Diesel prices until we don’t need to subsidise refiners again. (And to promote competition, we should set it in stone that we will no longer subsidise fuel).
- Fall in fuel consumption means an economy that’s slowing down
- Inflation should then come down as economic activity stagnates or slows.
- Car sales have been seeing degrowth over the previous year, and even though there are more cars (in absolute terms) on the road, people seem to be driving lesser on aggregate. This should impact store sales in large retail shops, transport income etc.