Business EconomyPosted at: Jun 2 2026 2:58PM


Fuel price hikes could add up to 48 bps to inflation, raise costs across economy: Report

New Delhi, Jun 2 (UNI) Rising petrol and diesel prices are likely to exert significant inflationary pressure on the Indian economy, with higher transportation and manufacturing costs expected to push up both food and core inflation in the coming months, according to a report by CRISIL.
The report noted that retail petrol and diesel prices have increased by around Rs 7.5 per litre since May 15, and further hikes remain possible if global crude oil prices stay elevated. With oil marketing companies gradually reducing their under-recoveries, cumulative fuel price increases could approach Rs 10 per litre in the near term.
According to CRISIL's estimates, a Rs 7.5-per-litre increase in fuel prices could directly add around 36 basis points (bps) to Consumer Price Index (CPI) inflation, while a Rs 10-per-litre increase could push the impact to nearly 48 bps.
The report highlighted that transport costs are a key transmission channel through which fuel inflation spreads across the economy. Freight transport accounts for 54 per cent of India's logistics costs, while road transport carries nearly 71 per cent of the country's freight movement. Fuel constitutes about 42 per cent of road transportation costs, making the sector particularly vulnerable to rising fuel prices.
Food inflation is expected to face upward pressure as higher transportation costs coincide with a low base effect. Products such as dairy items, tea, coffee, fruits, pulses, spices, eggs, meat, and fish are likely to witness stronger price pass-through due to their higher transport intensity.
Core inflation could also accelerate as transport-intensive sectors such as clothing, electronics, wood products, and housing-related construction materials, including cement and ceramics, face rising logistics expenses. Manufacturing industries reliant on mining products and chemicals may experience additional input cost pressures, the report said.
CRISIL observed that manufacturers may increasingly pass on higher costs to consumers to safeguard profit margins. In some cases, companies could resort to "shrinkflation" by reducing product quantities while maintaining existing prices.
The report, however, noted that the GST rationalisation announced in September 2025, which reduced tax rates on several mass-consumption products including electronics, automobiles, clothing, fast-moving consumer goods, and processed foods, could provide a partial offset to inflationary pressures stemming from higher energy costs.
Despite the emerging risks, CRISIL expects CPI inflation to remain below the Reserve Bank of India's upper tolerance limit of 6 per cent, although it may move higher from current levels. The report said the Reserve Bank of India is likely to look through the immediate supply-side impact of fuel prices while closely monitoring the possibility of broader inflation spillovers and the effects of a potentially below-normal monsoon and evolving El Niño conditions on food prices.
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