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Informist, Tuesday, Jun. 2, 2026

 

NEW DELHI – With a further increase in petrol and diesel prices "possible if crude (oil) prices remain elevated", analytics company Crisil Ltd. sees retail inflation rising by 48 basis points if fuel prices are raised by INR 10 per litre. Currently, the direct upside to CPI inflation is estimated at around 36 bps after the oil marketing companies raised petrol and diesel prices by around INR 7.5 per litre, the S&P Global company said Tuesday.

 

"With oil marketing companies gradually paring their losses (or under-recoveries), cumulative hikes could move closer to Rs 10/litre (INR 10) in the near term," economists at Crisil said in a report. In April and May, crude oil price has been at an average $112 per barrel, much higher than the sub-$73 per-barrel price before the West Asia war broke out on Feb. 28. Brent crude oil was at about $93.5 per barrel Tuesday.

 

Despite the steep jump in global crude oil prices, oil marketing companies absorbed the higher prices for around 75 days and began passing it on to consumers only in the second half of May--INR 7.5 per litre, half of what the market was expecting. As a result, CPI inflation saw a limited impact from the higher fuel prices in April. Retail inflation rose marginally to 3.5% in April from 3.4% in March. However, WPI inflation jumped much more to a 42-month high of 8.3% in April from 3.9% in March due to the rise in the companies' input costs.

 

Fuel is the single largest component of road transport costs at around 42%. Economists see the increase in retail fuel prices having a direct impact on freight cost structures and feeding into prices across supply chains in the coming months. "The broader effect will reverberate across the economy through higher transport costs, pushing up both food and core inflation," they said.

 

Further, the transport-intensive manufacturing sector is likely to exert input cost pressures, which will ultimately be passed on to customers to protect profit margins, economists said. "Alternatively, they can also resort to 'shrinkflation'--reducing volumes for a product at the existing price," according to the report.

 

To resolve this, the economists at Crisil suggested that the GST Council continue with goods and services tax rationalisation for at least a year. "The action should continue for at least a year to provide a partial counterbalance, if not fully neutralise pressure from elevated energy costs," according to the report. In September, the GST Council had overhauled the tax structure, lowered the number of slabs, and rationalised the tax on a slew of items. This "lowered inflation across several mass consumption items", Crisil said, including of "roughly 11 out of the top 30 consumption items".

 

According to Crisil's economists, it is only recently that the Indian economy has started facing retail fuel price hikes with some more on the anvil, amplifying both direct and indirect inflationary risks. However, inflation will "not cross the upper limit (of the Reserve Bank of India's) 6% tolerance band", they said.

 

While the economists at Crisil expect the RBI's Monetary Policy Committee to look through these supply-side issues, they see the rate-setting panel monitoring the impact of expected below-normal monsoon and evolving El Nino conditions on food inflation. "...it (Monetary Policy Committee) is likely to remain watchful of spillover risk to household inflation expectations, and the possibility of the second round leading to generalisation of price pressures", they said.

 

The Monetary Policy Committee, which will meet Wed-Fri, is expected to hold the repo rate at 5.25%. Nineteen of the 24 economists and market participants polled by Informist said the committee will keep the repo rate unchanged at the end of its three-day meeting.  End

 

Reported by Shweta

Edited by Rajeev Pai

 

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