Petrol, Diesel Price Surge May Add To Inflation Pressures: Crisil

New Delhi, Jun 3 (KNN) Petrol and diesel prices are set to exert fresh inflationary pressure on the Indian economy, with higher transport and manufacturing costs expected to filter through to consumer prices in the coming months, ratings agency Crisil warned in a report on Tuesday.

Petrol and diesel prices have risen by approximately Rs 7.5 per litre since May 15, with further increases likely if global crude oil prices remain elevated. 

Crisil said, "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 direct impact on the Consumer Price Index (CPI) is estimated at around 36 basis points for a Rs 7.5-per-litre increase, rising to nearly 48 basis points if hikes reach Rs 10 per litre.

Crude oil prices have averaged approximately USD 112 per barrel in the first two months of the current fiscal year — significantly above the base-case forecast of around USD 95 per barrel for the full year.

Freight Costs at the Centre

Beyond the direct effect, Crisil cautioned that fuel inflation could ripple through the broader economy via higher freight and logistics costs. Road transport accounts for roughly 71 per cent of India's freight movement, with fuel comprising about 42 per cent of operating costs — making it particularly exposed to fuel price swings.

Food categories heavily dependent on logistics networks — including dairy, tea, coffee, fruits, pulses, spices, eggs, meat, and fish — are expected to feel the strongest impact. Combined with a fading base effect, this could accelerate food inflation over the coming quarters.

Core Inflation Under Pressure Too

Core inflation may also face renewed stress as manufacturers contend with rising input costs from crude oil, petroleum products, natural gas, and higher freight expenses. 

Sectors such as clothing, consumer electronics, wood products, cement, and ceramics are among the most transport-intensive and could see stronger price pass-through to consumers.

Producers of chemicals, coal, and metal-related goods may similarly face higher input costs. With demand conditions relatively stable, companies are likely to either pass on costs to consumers or adopt shrinkflation strategies to protect margins.

Partial Offset from GST Cuts

Some inflationary pressure may be cushioned by GST reductions announced in September 2025, which lowered tax rates on several mass-consumption categories including electronics, automobiles, clothing, processed foods, and fast-moving consumer goods. 

However, analysts caution these cuts are unlikely to fully neutralise the effect of elevated energy costs.

RBI's Stance

Headline inflation currently remains below the Reserve Bank of India's (RBI) 4 per cent target, though Crisil expects it to trend higher — staying, nevertheless, within the central bank's 2–6 per cent tolerance band.

The RBI is expected to look past the initial supply-side shock from fuel prices. However, policymakers are likely to closely monitor the risk of rising household inflation expectations and broader-based price increases. 

The central bank will also be watching weather-related risks, including forecasts of a below-normal monsoon and evolving El Niño conditions, which could further cloud the food inflation outlook, the ratings agency noted.

(KNN Bureau)