The recent increase in retail prices of petrol and diesel is anticipated to elevate headline inflation by 10-25 basis points (bps) in the coming months, according to analysts. They caution that the cascading impact of higher fuel costs could compel the Reserve Bank of India (RBI) to reassess its inflation projections for the fiscal year. Several companies that had been delaying price hikes are now expected to raise rates, citing increased transport and input costs.
Impact on Transport Sector
The All India Transporters Welfare Association (AITWA) stated that freight rates for goods transported by road are likely to rise by 2.5-3%. The transport industry has been under cost pressure over the last few weeks, with prices of Diesel Exhaust Fluid (urea) used in BS-VI vehicles surging by more than 50%, along with increases in tyres, lubricants, toll charges, and other inputs. Ashok Goyal, national president of AITWA, remarked, “Transporters are left with no option but to partially pass on the burden to customers.” Bal Malkit Singh, former president of the All India Motor Transport Congress, added that the fuel price hike has further strained the finances of the transport industry. “Diesel alone contributes nearly 50-55% of total truck operating costs, and with increases in fuel prices, tolls, insurance, tyres, maintenance, and compliance expenses, transporters are struggling for survival.”
Inflation Projections and Economist Views
The impact of the fuel price revision is expected to appear in the May consumer price index (CPI) print, with full transmission likely from June onwards. Most economists are revising their projections for the year. Gaura Sengupta, chief economist at IDFC First Bank, noted that the change in petrol and diesel prices will add 12 bps to headline CPI inflation, incorporating only the direct pass-through, with May CPI inflation estimated at 3.9%. She said, “We expect a cumulative rise of up to 10% in retail petrol and diesel prices (including today's increase), spread over the next few months. Full-year FY27 CPI inflation is expected to average 4.9%.” Aditi Nayar, chief economist at ICRA Ratings, expects the fuel price hike to push up average retail inflation by 25 bps on an annualised basis. “We are now revising our forecast for May 2026 to 4.3% from 4.1%,” she stated. Radhika Rao, senior economist at DBS Bank, observed that higher pump prices are likely to moderate demand and consequently the import burden. “Given the weightage of petrol and diesel in the CPI basket, a 3-5% increase likely adds 15-25 bps to the headline print, besides second-round impact,” she said.
Second-Round Effects and Additional Pressures
Economists warn that the concern is not merely the direct impact of fuel inflation but also the second-round effects through transportation, logistics, manufactured goods, and services. Megha Arora, director at India Ratings & Research, pointed to additional pressure from rising milk prices alongside fuel costs. “The combined effect of petrol, diesel, and milk price is likely to increase CPI inflation by around 42 bps. The actual impact is likely to be higher via the fuel user industry like transportation and others. However, the impact in the month of May 2026 could be around 20 bps,” she explained.
