Central government-owned oil marketing companies on Monday raised the prices of petrol and diesel for the fourth time in 10 days, taking the cumulative hike to around ₹8 per litre for either fuel and triggering fears of a broad-based inflation hitting household budgets.
Following the latest increase of close to ₹3, petrol and diesel retailed at ₹113.47 and ₹99.82 a litre, respectively, at Indian Oil Corporation outlets in Calcutta.
Analysts warned of the possibility of a further rise in rates unless the fragile truce between the US and Iran led to sustained softer international crude prices.
Consumer price index (CPI)-based inflation rose to 3.48 per cent in April, marginally up from 3.4 per cent in March, driven mainly by food prices. The April data did not capture the impact of the Iran war because retail oil prices, not hiked for four years in India, remained frozen ahead of Assembly elections.
India, which imports 90 per cent of its energy needs, has been among economies hit the hardest by the West Asia conflict because of its reliance on oil and gas shipments through the Strait of Hormuz, a critical trade route that has largely stayed blocked since the war began on February 28.
Finance minister Nirmala Sitharaman on Monday defended Prime Minister Narendra Modi’s call for austerity, arguing the challenges were “more externally driven”, and called for a focus on three Fs: fuel, fertiliser and forex.
Experts say that CPI inflation, which directly impacts households, will rise sharply to 5 per cent from June, hurting middle and lower-income groups.
"The cumulative increase in retail fuel prices following the conflict in West Asia is estimated to have a direct impact of around 0.35 per cent on headline CPI inflation," Rajani Sinha, chief economist at CareEdge Ratings, said in a note.
"Beyond the direct effect, there are likely to be substantial indirect inflationary pressures arising from higher transportation costs — including cab and auto fares, freight and logistics expenses — as well as increased input costs in the agricultural sector, which could further elevate food inflation."
These indirect effects might add another 10-15 basis points to the overall CPI inflation. "Considering the higher pass-through of costs to consumers, we expect CPI inflation to average in the range of 4.6-5.0 per cent," Sinha said.
The inflation will be led by diesel, which has a high share in trucking costs.
"Estimates suggest that for every price increase of ₹5, freight costs may rise by 2.8 per cent. This implies that each ₹1/litre hike in diesel price may typically drive around 0.5-0.6 per cent escalation in freight costs," said Sourav Mitra, partner at Grant Thornton.
According to Aditi Nayar, chief economist with ICRA, the full impact of the recent spikes would be reflected in the June inflation numbers (to be published in July).
"We now expect the CPI inflation to average 5 per cent in FY27, presuming crude oil averages around $95/barrel," Nayar said.
Analysts are hoping that the progress in US-Iran peace talks, which has led to a fall in benchmark crude oil prices to around $95 a barrel from nearly $108, will provide a cushion against further aggressive price hikes.
"We note that at current Brent prices, another hike of ₹2.5/litre will bring the OMCs’ (oil marketing companies) auto fuel under-recoveries to zero," said Madhavi Arora, chief economist at Emkay Global.
Sujata Sharma, a joint secretary in the ministry of petroleum and natural gas, however, said on Monday that the OMCs were still losing a little less than ₹600 crore a day, although down from ₹1,000 crore a day before the four rounds of price hikes.
These losses, however, include that from the sale of domestic LPG, which is subsidised for households.