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.
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.
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 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.
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.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.