Inflation boils down Indian household earnings — have they heard about Bitcoin?

Indian markets recoiled from the oil shock, with an impending fuel price hike bound to hit households.
Indian markets recoiled from the oil shock, with an impending fuel price hike bound to hit households. Image from freepik

Key Takeaways:

  • Inflation in India reached a 7-month high in Jan.
  • An impending hike in fuel prices is likely to hit Indian households’ budget plans.

NEW DELHI (CoinChapter.com) — Inflation is rising in India, the second-most populous country globally, 25.01% of which suffers from multidimensional poverty.

In January, retail inflation in India reached 6.01%, a seven-month high. The value is just above the Reserve Bank of India’s tolerance limit. In 2021, the country’s central bank had set an inflation target of 4% with a +/-2% tolerance band, stating it was appropriate for the next five years.

Furthermore, core inflation, which is non-food and non-fuel inflation, eased marginally to 5.96% in Jan. Although the tax cuts on petrol and diesel in Nov likely eased some of the stress on consumers, the ongoing Russia-Ukraine tensions might lead to a hike in fuel prices.

Surging oil prices have led to negative market sentiment towards India, a major energy importer. The rupee is down to a record low, with USD exchange rates climbing to INR 77.15 on Mar 7.

INRUSD exchange rates. Source: Tradingview.com
INRUSD exchange rates. Source: Tradingview.com

Meanwhile, investors including Quantum Asset Management Co. and ICICI Securities Primary Dealership Ltd. believe cash to be the best safe haven in India. Moreover, the falling rupee dragged down stocks and bonds as well.

Also Read: Inflation expectations rise ahead of the CPI report as oil prices spike amid the war in Ukraine.

Economic and trade sanctions on Russia have led to a shortage of oil supply, leading to increased crude oil prices. Furthermore, with the UAE taking a step back from assurances that it would encourage fellow OPEC members to boost their production above their agreed quotas, prices are likely to increase.

Since India relies on imports to meet nearly 85% of its oil requirements, the country is likely the most exposed in Asia to the rising oil prices. As a result, surging crude is likely to impact other sectors and harm the nation’s economic recovery.

To better understand the impact of inflation and rising oil prices, CoinChapter talked to some people from different income groups.

Bitcoin To The Rescue?

Investors have often touted Bitcoin as a hedge against inflation. However, the top cryptocurrency’s recent correlation with the traditional financial markets has dented its digital gold image.

As global markets fell following Russia’s invasion of Ukraine, Bitcoin and other cryptocurrencies followed suit. But, investors continue to show interest in the crypto sector, with digital asset investment products witnessing a total inflow of $127 million in the week ending March 7, according to CoinShares.

CoinChapter reached out to Mr. Manoj Yadav, a tea vendor with a small shop in New Delhi. The COVID-19 induced lockdown severely impacted his business, as he said the loss in business ate away his savings.

With a gross annual income of ₹144,000 (roughly $1,880), Yadav belongs to the low-income group of the Indian population. Moreover, the rising inflation has led to a fall in his profit margins. Although he has heard of Bitcoin, he has not invested in it.

I need to have some money first in order to invest and safeguard it from inflation. Thanks to the rising prices, I take home even less than what I used to before the pandemic closed down my business for better part of the year.

Manoj told CoinChapter

Rising natural gas prices also directly impact his income, as Manoj uses LPG cylinders to make the tea he sells. Not just Bitcoin, Yadav has not invested in any traditional investment vehicles either. However, he remains optimistic, stating he would invest in Bitcoin after saving some money.

Also Read: Is Marathon Digital, a Bitcoin mining stock, a better buy than MicroStrategy? Let’s see.

Meanwhile, Gautam Sharma, a research scholar, believes people would likely downscale their expenses due to rising inflation and the impending fuel hike. He has invested a small amount in Bitcoin but does not consider BTC a hedge.

Given the recent crypto market bear run, he is not hopeful of recovering his losses. But, Gautam says that given a chance, he would invest in Bitcoin in the future, though real estate remains his haven of choice.

What The Middle And High Income Groups Say

Arun Kanojia, a grocery shop owner with an annual family income upwards of ₹2 million (roughly $26,000), said inflation reduced his customers’ buying power.

Customers who usually bought expensive perfumes have now switched to cheaper brands, as most people are either reducing their consumption of everyday items or switching to cheaper alternatives.

Arun said

Asked how inflation impacted his buying habits, he joked that his family has stopped going out to eat every week. He elaborated that his family opted to use their car only when unavoidable to save on fuel costs.

Rising fuel prices have made it difficult for Arun to manage expenses, including his home EMI, shop rent, and medical bills. He has heard of Bitcoin and cryptocurrencies but has resisted investing since he lacks sufficient knowledge of the sector.

Though real estate is Arun’s hedge of choice, he has invested in gold too but not in the last three months. He believes that the coming fuel price hike would drive consumer product prices higher, resulting in lesser sales.

Also Read: India adds 10M new retail equity investors during the pandemic; crypto adoption also booms.

Mr. Kanojia plans to invest in Bitcoin, but only after gaining enough knowledge of the sector.

On the other hand, Harshit Baranwal, a 30 years old sports broadcaster with Star Sports, is an avid crypto investor. He sits at the higher end of the income spectrum, with an annual household income upwards of ₹5.5 million (roughly $72,000).

Harshit said that inflation did not have much impact on his family. Although he has invested and profited from cryptos, Harshit also has investments in traditional products like SIP. Moreover, Baranwal said he does not view cryptos as a hedge against inflation.

Instead, it is more like an additional revenue stream for him. Harshit also plans to invest in real estate in the coming months. In addition, the metaverse has his attention as he believes once meta catches mainstream attention, “there will be no stopping the crypto sector.

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