Higher petrol, diesel prices threaten to rekindle inflation pressures

New Delhi: Rising petrol and diesel prices are poised to add fresh inflationary pressures to India’s economy, with higher transport and manufacturing costs expected to feed through to consumer prices in the coming months, Crisil said in a report on Tuesday. Petrol and diesel prices have increased by about Rs 7.5 per litre since May 15, and further increases remain likely if global crude oil prices stay elevated. “With oil marketing companies gradually paring their losses (or under-recoveries), cumulative hikes could move closer to Rs 10 per litre in the near term,” the rating agency said. “The broader effect will reverberate across the economy through higher transport costs, pushing up both food and core inflation.”

The direct impact of higher fuel prices on Consumer Price Index (CPI) inflation is estimated at around 36 basis points for a Rs 7.5-per-litre increase in petrol and diesel prices, rising to nearly 48 basis points if cumulative hikes reach Rs 10 per litre. Beyond the immediate effect, Crisil warned that fuel inflation could spread more broadly through the economy via higher freight and logistics costs. Road transport, which accounts for roughly 71 per cent of India’s freight movement, is particularly exposed, with fuel representing about 42 per cent of operating costs. “The increase in retail fuel prices will directly impact these freight cost structures and feed into prices across supply chains in the coming months,” it said.

The increase in transport costs is expected to have the strongest impact on food categories that rely heavily on logistics networks, including dairy products, tea, coffee, fruits, pulses, spices, eggs, meat and fish. Combined with a favourable base effect fading, this could accelerate food inflation in the coming quarters.

Crisil said core inflation could also face renewed pressure as manufacturers contend with rising costs for crude oil, petroleum products and natural gas, alongside higher transportation expenses. Sectors such as clothing, consumer electronics, wood products and construction materials, including cement and ceramics, are among the most transport-intensive and could see stronger price pass-through. (PTI)