Fuel price hikes may add 48 bps to CPI in 2026

What changed in petrol and diesel prices

Rising petrol and diesel prices are set to add fresh inflationary pressure in India, as higher transport and manufacturing costs gradually move into consumer prices, Crisil said in a report released on Tuesday. Petrol and diesel prices have risen by about Rs 7.5 per litre since May 15, according to the report. Crisil added that further increases remain likely if global crude oil prices stay elevated.

The rating agency flagged that oil marketing companies are gradually paring their losses, also described as under-recoveries. As that process continues, Crisil said cumulative hikes could move closer to Rs 10 per litre in the near term.

Crisil’s CPI inflation estimate: direct impact

Crisil quantified the first-round effect on retail inflation through the Consumer Price Index (CPI). It estimated the direct impact at around 36 basis points for a Rs 7.5-per-litre increase in petrol and diesel prices. If cumulative hikes reach Rs 10 per litre, the direct impact was estimated to rise to nearly 48 basis points.

The report’s warning was not limited to this immediate CPI arithmetic. It said the broader effect is likely to reverberate across the economy via higher transport costs, affecting both food inflation and core inflation over the coming months.

Freight and logistics are the main transmission channel

Crisil’s report emphasised second-round effects, where fuel inflation spreads into a wide set of goods and services through logistics. Road transport, which accounts for roughly 71% of India’s freight movement, is particularly exposed. Fuel represents about 42% of operating costs for road transport.

With this cost structure, changes in retail fuel prices can quickly alter freight rates and logistics bills. Crisil said the increase in retail fuel prices will directly impact freight cost structures and feed into supply chain prices in the coming months.

Food categories that can feel the pressure first

The report highlighted that higher transport costs tend to hit food categories that rely heavily on logistics networks. It listed dairy products, tea, coffee, fruits, pulses, spices, eggs, meat and fish as categories where cost increases could show up more visibly.

Crisil also pointed to the role of base effects in shaping quarterly inflation readings. It said that as a favourable base effect fades, food inflation could accelerate in the coming quarters when combined with higher logistics costs.

Transport-intensive consumer sectors in focus

Beyond food, Crisil identified several transport-intensive segments that could see stronger price pass-through. These included clothing, consumer electronics, wood products, and construction materials such as cement and ceramics.

The report also noted that manufacturers of chemicals, coal and metal-related products may face higher input costs. With demand conditions described as relatively stable, companies may try to pass higher costs on to consumers, or use shrinkflation strategies to protect margins.

Crude oil levels versus Crisil’s base case

Crisil’s inflation concerns were tied to the global crude oil backdrop. It said crude oil prices averaged about USD 112 a barrel during the first two months of the current fiscal year. This was significantly above its base-case forecast of around USD 95 a barrel for the full year.

If crude stays elevated, it increases the likelihood of further fuel price increases domestically, and extends the period during which freight and input-cost pressures remain high.

Where inflation stands relative to RBI’s framework

Crisil said headline inflation remains below the Reserve Bank of India’s 4% target. But it expects inflation to trend higher, while still remaining within the RBI’s 2-6% tolerance band.

On policy response, the report said the RBI is expected to look through the initial supply-side impact of higher fuel prices. Even so, policymakers are likely to closely monitor risks to household inflation expectations and the possibility that transport and input-cost pressures trigger broader-based price increases.

Weather risks: monsoon and El Nino

Crisil also flagged weather-related uncertainty as a complicating factor for food inflation. It pointed to forecasts for a below-normal monsoon and evolving El Nino conditions. These risks can amplify food price volatility at a time when logistics costs are also rising.

What other economists are watching

Separate economist commentary cited alongside the broader coverage also pointed to measurable inflation sensitivity. DBS Bank estimates indicated that a 3-5% increase in petrol and diesel prices could add around 15-25 basis points to headline inflation, excluding broader second-round effects.

There was also commentary linking the move to global crude dynamics and the burden on domestic oil marketing companies. One account noted that fuel prices across India were raised on Friday by up to Rs 3 per litre, described as the first major hike in nearly four years amid higher crude prices.

Key numbers from the reports

Market impact and why it matters

For markets and businesses, the report underlines a familiar transmission mechanism: fuel price increases first hit freight and logistics, then show up in food items and transport-heavy manufactured goods. The sectors listed by Crisil, including construction materials such as cement and ceramics, tend to have visible cost pass-through when freight becomes more expensive.

For investors, the key risk is not only the direct CPI addition of 36-48 bps estimated by Crisil, but the persistence of second-round effects if crude remains well above the base-case forecast. The RBI’s stance, as described by Crisil, suggests the central bank may treat the initial shock as supply-driven, while watching whether inflation expectations and broader pricing behaviour shift.

Conclusion

Crisil’s report frames the recent Rs 7.5-per-litre rise in petrol and diesel prices as a renewed inflation risk, with a direct CPI impact estimated at about 36 bps and a potential rise to nearly 48 bps if cumulative hikes approach Rs 10 per litre. The larger concern is the spread into freight, food categories dependent on logistics, and transport-intensive consumer and industrial goods.

The next signals to watch are the trajectory of global crude oil prices, any further retail fuel price moves, and how the RBI evaluates risks to inflation expectations alongside weather-related pressures from monsoon and El Nino conditions.