Fuel price hikes could add up to 48 bps to inflation, warns Crisil

Crisil said cumulative increases in petrol and diesel prices could approach Rs 10 per litre, raising transport costs and exerting upward pressure on both food and core inflation

The cumulative increase in retail prices of petrol and diesel since May 15 could move closer to ₹10 per litre level, from the current ₹7.5 per litre, escalating inflation across commodities, ratings agency CRISIL said in a report on Tuesday.

 

Further hikes are possible if crude prices remain elevated and the broader effect will reverberate across the economy through higher transport costs, pushing up both food and core inflation, it said. 

 

"The direct upside to inflation linked to the Consumer Price Index (CPI) is estimated at 36 basis points (bps) with a hike of ₹7.5 per litre in petrol and diesel prices, rising to around 48 bps if the retail fuel prices increase by ₹10 per litre," Crisil said.

 

 

Producers face a dual cost shock, with higher prices of crude, petroleum products and gas raising manufacturing costs, and fuel price hikes increasing transport costs, which will add to the final price paid by the consumer.

 

With oil marketing companies gradually paring their losses or under-recoveries, cumulative hikes could move closer to ₹10 per litre in the near term, according to the agency, impacting inflation. Freight transport accounts for 54 per cent of India’s logistics cost and road transport represents nearly 71 per cent of total freight movement.

 

"Fuel is the single-largest component of road transport costs at 42 per cent. The increase in retail fuel prices will directly impact these freight costs structures and feed into prices across supply chains in coming months," Crisil said.

 

The confluence of a low base and rising transport costs will quicken the pace of food inflation, and transport costs contribute more to the prices of dairy products, tea, coffee, fruits, pulses, spices, eggs, meat and fish. These categories are more vulnerable to increases in fuel and transportation costs.

 

A sharp rise in transport costs, coupled with cost pressure from other commodities will raise core inflation. Clothing, electronic products, wood products and housing-related construction materials are more transport-intensive than the national average. Rising transport prices will impact the final prices of these products.

 

"Manufacturing inputs such as mining (iron, coal) and chemical products are also transport-intensive; thus, input cost pressure for manufacturers will likely increase," Crisil said, adding that manufacturers are increasingly likely to pass on higher costs to consumers to protect profit margins.

 

The agency also said the goods and services tax (GST) rationalisation announced in September 2025 lowered inflation across several mass consumption items such as electronics, automobiles, clothing, fast-moving consumer goods, and processed foods. "This should continue to provide a partial counterbalance for at least a year, if not fully neutralise pressure from elevated energy costs," Crisil said.

 

Crude prices have averaged around $112 per barrel for the first two months of the current fiscal and the base case expectation stands at around $95 per barrel for the full fiscal year. "The economy has only recently started facing retail fuel price hikes with some more in the anvil amplifying both the direct and indirect inflationary risks," Crisil said.

 

Though CPI inflation currently remains below the Reserve Bank of India’s 4 per cent target, it is projected to move up but not cross the upper limit 6 per cent tolerance band, the agency said, adding that it expects the RBI Monetary Policy Committee to look through these supply-side impressions on CPI price inflation.