Why are prices not going down?

If oil prices are falling steadily, it should be good news. Classic economics tells us sliding petroleum rates would bring overall prices – from those of vegetables to fruits to meat to whatever you buy– down. Even your auto and taxi fares should have been down. But that's just not happening.

Economists believe there is room for a substantial drop in transportation costs. Government data shows transport costs grew 2.4% in October 2014, much below the 6.2% recorded in April 2014. Consumer Price Index, or retail inflation, was down to 5.5% in October 2014 from 9.6 % in April earlier this year and 6.4% in the preceding month.

On Sunday, diesel price was reduced by 84 paise per litre in a third straight cut. Petrol price was cut by 93 paise in Mumbai.

By how much has diesel price been cut so far?
It was cut for the first time in more than five years on October 19 by Rs 3.37 a litre when the government decided to deregulate fuel prices. This was followed by another reduction on November 1.

What about LPG and jet fuel price?
On Monday, the government cut non-subsidised cooking gas (LPG) rates by a steep Rs 113 per cylinder and that of jet fuel or aviation turbine fuel (ATF) by 4.1%. A 14.2-kg cylinder of non-subsidised LPG will now cost Rs 752, down from Rs 865, in Delhi. This is the fifth straight rate reduction of non-subsidised or market-priced LPG cylinders, which customers buy after exhausting their quota of 12 cylinders at subsidised rates.

Has freight charge seen any drop?
Says Siddhartha Roy, economic advisor, Tata group, said, "Freight charges have remained static. Other transport costs have come down only after discussions with the unions like taxi unions, etc. But there is a room for freight charges to come down, as it also helps inflation to come down."

Will a drop in freight cost push down inflation?
Saugata Bhattcharya, chief economist, Axis Bank, told dna, "Transport prices have come down but not in tandem with diesel price cuts. Transport costs have gone down to 2.7% in October from 6.2% in April, but it has not reflected in taxi, auto and BEST bus charges. Truckers may have reduced prices marginally. But prices should have come down faster so that overall inflation also comes down."

What's the impact on Mumbai's vegetable market?
Sanjay Pansare, director, APMC market (Navi Mumbai), says transportation cost is the main culprit. "I agree prices should have come down, but we can't do much until transportation price comes down," he said. Farmers should ask transporters to reduce prices. Only then will commodities get cheaper". Pansare says transportation associations which makes a hue and cry when fuel prices go up should reduce transportation costs when fuel prices drop.

What do transport unions say?
"We are under tremendous pressure as there is not much business these days," says Ashok Rajguru General secretary, Bombay goods transport association. "There is no reduction in toll prices and we have to pay a heavy toll across the state. Then, there are bank loans to take care of, and, most importantly, there is a dearth of drivers," he says. Rajguru says transport associations have already reduced charges by 3% and might reduce more if the situation improves.

Why are flight fares not getting cheaper despite ATF price cut?
This is the fifth straight monthly reduction in ATF rates. Since August, ATF prices have been cut by 14.5% and rates have dipped below Rs 60,000 per kl level for the first time in three years. But aviation companies are not ready to pass this benefit on to fliers.

What's oil price in global market?
Brent, the benchmark grade for more than half of the world's oil, has dropped to $68.34 a barrel, the lowest since October 2009. Prices fell 18% during last month and are hovering 38% lower in 2014 as compared to last year.