Petrol Prices To Be Hiked Again? CRISIL Issues Warning | How It Could Impact Food Inflation

As India's oil marketing companies are reducing their losses after oil prices were increased by a total of Rs 7.5 in four phases since May 15, the cumulative fuel increase in petrol and diesel prices could reach Rs 10 to give them further relief, according to a report from a rating agency on Tuesday.  

The Oil marketing companies have been bearing massive losses amid elevated crude prices due to ongoing tension in the Middle East. 

"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," Crisil said in a report.

The report states that rising petrol and diesel prices are likely to put new inflationary pressure on the Indian economy, with rising transportation and manufacturing costs likely to push up consumer prices in the coming months.

Petrol and diesel prices have risen by approximately Rs 7.5 per litre since May 15, and are likely to rise further if global crude oil prices continue to rise.

"The broader effect will reverberate across the economy through higher transport costs, pushing up both food and core inflation," according to the report.

The direct impact of the fuel price hike on Consumer Price Index (CPI) inflation is estimated at 36 basis points for a Rs 7.5 hike in petrol and diesel prices, rising to about 48 basis points if the cumulative hike is Rs 10 per litre.

Fuel Inflation Could Impact The Economy

Beyond the immediate impact, Crisil warned that fuel inflation could spread more widely through the economy through higher freight and logistics costs.

Road transport, which accounts for about 71 per cent of India’s freight transport, 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.

Pressure On Manufacturers

CRISIL said core inflation could also face renewed pressure as manufacturers grapple with rising prices of crude oil, petroleum products, and natural gas, as well as higher transportation costs.

Sectors such as apparel, consumer electronics, wood products, and building materials, including cement and ceramics, are among the most transportation-intensive and could experience a stronger price impact.

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Manufacturers of chemicals, coal, and metal-related products may also face higher input costs. With demand conditions remaining relatively stable, companies are increasingly likely to pass these costs on to consumers or adopt inflation-reducing strategies to protect margins.

The reduction in the Goods and Services Tax (GST) announced in September 2025, which lowers tax rates on several mass consumption categories, including electronics, automobiles, clothing, processed food, and fast-moving consumer goods, may mitigate some of the impact of inflation.

The tax cuts are expected to continue to exert downward pressure on prices next year, but analysts say they will not fully offset the impact of rising energy costs.

Crude oil prices averaged US$112 per barrel in the first two months of the current financial year, significantly higher than the baseline estimate of around US$95 per barrel for the full year.

While headline inflation is still below the Reserve Bank of India's 4 per cent target, Crisil expects it to rise further but still remain within the central bank's 2-6% tolerance band.

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The Reserve Bank of India (RBI) is expected to monitor the initial supply-side impact of the fuel price hike. However, policymakers will closely monitor risks to household inflation expectations and the potential for broader price increases across the economy due to rising transport and input costs.

The report said the central bank will also pay attention to weather-related risks, including a below-normal monsoon forecast and an emerging El Niño scenario, which could further complicate the food inflation outlook.

(With Inputs From PTI)