Russia-Ukraine War: India's Household Expenses May Rise, Consumer Inflation Increase

As Russia launches a major military attack on Ukraine and crude oil prices reach $105 per barrel, India Inc executives have warned of increased inflation and supply problems.

The Russia-Ukraine war would have a "major" impact on family spending in India, with many consumer product firms not ruling out future price increases as more expensive crude oil has a cascading effect on consumer products. Several corporations have stated that they will wait and watch the scenario caused by the global crisis for any short-term escalation.

High crude oil prices impact food

The Russia-Ukraine conflict has already pushed up the price of crude oil, which is already trading above $100 per barrel; this will have an impact on practically all consumer-facing items, either directly or indirectly. India imports approximately 80% of its oil needs, and the price increase is putting the country at risk of inflation. According to the RBI, every $10 increase in oil prices adds around 0.5% to inflation.

The Russia-Ukraine situation may have an influence on food prices in India. According to experts, the sudden increase in crude oil prices would pose inflationary and fiscal concerns to the economy. Furthermore, the spike in crude oil prices is projected to have an impact on LPG and kerosene subsidies. The rise in crude oil prices will raise transportation expenses, which will in turn raise food prices. Hydrocarbon compounds, paper-based packaging material, raw honey, culinary oils, and other important spices used in India are already seeing ongoing inflation.

India would be impacted by oil and food prices

According to ICICI Securities, higher crude oil prices as a result of the Russia-Ukraine conflict will keep Consumer Price Index (CPI) inflation higher for longer, forcing the RBI to raise rates more than the two hikes expected in August-December 2022, because transportation accounts for about a fifth of an average consumer's CPI basket. Russia is responsible for 11% of worldwide crude-oil exports. If sanctions remove around 60% of this from global markets, global crude-oil supply would fall by 3mmbd, and the Brent crude price would likely rise over $110/bbl, according to ICICI Securities.