Are the markets pricing in fuel-led inflation?

After a hike of Rs 25 per litre in diesel prices for bulk buyers over the weekend, the government raised petrol and diesel prices by 80 paise a litre each.
Domestic cooking gas, or LPG prices were increased by Rs 50 per cylinder, ending over four-and-half month election-related hiatus in rate revision amid rising crude oil prices.
 
The government had kept the prices of auto fuels unchanged since November 2021 despite the Russia’s war with Ukraine that pushed crude oil prices to a 14-year high of over 140 dollars a barrel. Retail prices of petrol and diesel had been frozen since October 2021 when crude oil prices were hovering around 80 dollars a barrel.

 Analysts expected a steeper hike in petrol and diesel prices around March 10 when the outcome of the assembly polls across five key states of Uttar Pradesh, Punjab, Uttrakhand, Goa and Manipur was announced.
G Chokkalingam of Equinomics Research, for instance, said hiking bulk prices for diesel is comparatively less inflationary than hiking retail prices of petrol and diesel.
 
“The market was expecting a much steeper hike across the board, especially after the state poll outcome was known; and in the backdrop of Russia-Ukraine war and its impact on crude oil prices,” says Chokkalingam, founder & CIO, Equinomics Research.

Let’s now go to Ambareesh Baliga, an independent market analyst to understand how he has interpreted the development and its likely impact on the markets.
 
Analysts believe inflation will trend higher amid rise in oil prices as the solution to the ongoing geopolitical crisis is not in sight yet.
 
Sonal Varma of Nomura expects retail inflation to average 6.3 per cent y-o-y in 2022, with core inflation likely to trend above 6.5 per cent throughout most of the year.

AK Prabhakar of IDBI Capital, too, believes that the markets have not yet fully priced in the impact of a hike in fuel prices and its impact on inflation. Let’s listen in to what he said.
 
With no major economic releases in India during the week, the markets are likely to remain range-bound. Stock specific action will continue.

Twitter: @Pun_ditry