Fuel price hikes likely to push up food, core inflation: Crisil

03 Jun 2026 Evaluate

Amid lingering concerns over the inflationary impact of the West Asia conflict, Crisil in its report has said that rising petrol and diesel prices are set to exert fresh inflationary pressures on the Indian economy. Higher fuel costs are expected to increase transportation and manufacturing expenses, which could gradually be passed on to consumers in the coming months. Petrol and diesel prices have already risen by around Rs 7.5 per litre since May 15, and further increases are likely if global crude oil prices remain elevated. It noted that as oil marketing companies continue to reduce their under-recoveries, cumulative fuel price hikes could approach Rs 10 per litre in the near term. The report added that the impact would extend across the economy through higher transportation costs, contributing to both food and core inflation.

It said the direct impact of higher fuel prices on Consumer Price Index (CPI) inflation is estimated at around 36 basis points for a Rs 7.5-per-litre increase in petrol and diesel prices, rising to nearly 48 basis points if cumulative hikes reach Rs 10 per litre. Beyond the immediate effect, Crisil warned that fuel inflation could spread more broadly through the economy via higher freight and logistics costs. Road transport, which accounts for roughly 71 per cent of India’s freight movement, is particularly exposed, with fuel representing about 42 per cent of operating costs. It said ‘The increase in retail fuel prices will directly impact these freight cost structures and feed into prices across supply chains in the coming months’.

The increase in transport costs is expected to have the strongest impact on food categories that rely heavily on logistics networks, including dairy products, tea, coffee, fruits, pulses, spices, eggs, meat and fish. Combined with a favourable base effect fading, this could accelerate food inflation in the coming quarters. Crisil said core inflation could also face renewed pressure as manufacturers contend with rising costs for crude oil, petroleum products and natural gas, alongside higher transportation expenses. Sectors such as clothing, consumer electronics, wood products and construction materials, including cement and ceramics, are among the most transport-intensive and could see stronger price pass-through. Manufacturers of chemicals, coal and metal-related products may also face higher input costs. With demand conditions remaining relatively stable, companies are increasingly likely to pass on these costs to consumers or resort to shrinkflation strategies to protect margins.

Some of the inflationary impact could be offset by goods and services tax (GST) reductions announced in September 2025, which lowered tax rates on several mass-consumption categories, including electronics, automobiles, clothing, processed foods and fast-moving consumer goods. The tax cuts are expected to continue exerting downward pressure on prices over the next year, though analysts say they are unlikely to fully neutralise the impact of elevated energy costs. Crude oil prices have averaged about $112 a barrel during the first two months of the current fiscal year, significantly above a base-case forecast of around $95 a barrel for the full year. While headline inflation remains below the Reserve Bank of India’s 4 per cent target, Crisil expect it to trend higher, though still remain within the central bank’s 2-6 per cent tolerance band.

Fuel price hikes likely to push up food, core inflation: Crisil

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