Edible oil, fuel price drops to help pick up demand, ease inflation

India, which imports over 60 per cent of its edible oil needs and 85 per cent of its energy, may see a rise in demand and easing inflation as commodity prices fall in the global market.
As global prices for edible oil plummet, the government has directed companies to cut the Maximum Retail Price to pass on the benefits to consumers.
In fact, edible oil prices have been climbing down for a while after soaring to record highs over the last few months when the war cut off supplies to sunflower oil from the Black Sea region and Indonesia limited exports of palm oil – the world’s most-consumed edible oil.
Global edible oil prices have reduced by 10 per cent in the last one week alone, Food Secretary Sudhanshu Pandey told news agency PTI. Last month, edible oil makers had slashed prices by Rs 10-15. This reduction followed another drop in MRPs previously.
At the same time, international oil prices have been falling over the last few weeks, with some estimates forecasting that oil could sell at as low as $85 per barrel by the end of this year. Brent crude futures dropped to $98.5/barrel on Wednesday, falling below $100/barrel for the first time since April 25.
The drop in commodity prices is a silver lining for India and may help the central bank tame inflation and enable the government to close the current account deficit (CAD).
Boost for demand
Since India imports more than 60 per cent of its edible oil requirements and 85 per cent of its energy needs, falling international prices will help pick up demand and is likely to ease inflation in the country.
So far, the meteoric rise in commodity prices had squeezed demand in the Fast Moving Consumer Goods (FMCG) sector which is often used as an indicator of economic recovery. Customers, especially in rural areas, cut purchases of daily essentials or move to less expensive brands or buy smaller packs when costs are high. If the FMCG sector lowers prices, then customers are able to loosen their purse strings and spend more freely.
Edible oils such as palm oil are a key commodity used by FMCG makers. With input costs coming down, products like soap, skin care products, shampoos, biscuits, and noodles can also be sold at lower prices.
Products like atta (wholemeal wheat flour), edible oils, hand wash, floor cleaners, hair oils, and detergent bars contribute 65 per cent of all FMCG volume sold. Atta and edible oils alone contribute nearly 45 per cent of FMCG volumes, Kantar group said in a June update. Lower edible oil prices and those of products made from its derivatives means growth in the FMCG industry looks promising in the next quarter.
Additionally, lower fuel costs will reduce the transport charges and help households ease their budgets.
Benefits from falling oil prices
While Brent crude prices fell on Wednesday over recession fears, prices did recover 2.5-3 per cent a day after the plummet. While the prices are expected to stabilise, for now, analysts say they expect a significant fall only in the mid-term.
When prices do fall by a substantial amount, it will help India lower its energy import bill and save precious foreign exchange from leaving the country. The benefits will also reach customers at fuel stations.
Meanwhile, the plummet is good news for India in the near term also because its oil import bill for FY23 is likely to be less than estimated. It can help India reduce its trade deficit which grew 51 per cent in June to a fresh monthly peak of $25.6 on high imports of costly oil and other commodities. The fall in oil prices can also ease the cost of natural gas and subsidised goods like fertilizers.
Global food prices ease
Meanwhile, global food prices are also set to ease as the cost of edible oils and grains have dropped to their lowest levels in months after the war held up the essentials. Shortages, supply-chain-linked chaos, and weather-linked yield hits had threatened to push the world, particularly poorer nations, into a hunger crisis. Reports say that now the prices of grains are back to levels before the invasion.
This happened after investors reduce their bullish bets on futures markets as the US central bank hiked interest rates and fears of a recession become more real. The US corn and soybean futures also touched a low on fears that the yield will not be as big as estimated. Besides these, a spike in palm oil export and production has helped food prices ease bringing some relief to consumers who were stretched thin over the last few months.
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