Fuel Price Hike Expected to Raise Inflation by Up to 20 Basis Points
Fuel price hike may push inflation up by 20 bps, say experts
The Economic Times
Image: The Economic Times
Economists predict that recent fuel price increases in India could raise retail inflation by 15-20 basis points in the coming months. The hike, driven by rising global crude oil prices, will directly affect transportation and logistics costs, potentially leading to broader price pressures across the economy.
- 01State-run oil marketing companies raised petrol and diesel prices by ₹3 per litre, marking the first increase in four years.
- 02Petrol and diesel account for 4.8% of the Consumer Price Index (CPI) basket, significantly influencing inflation rates.
- 03ICRA estimates May inflation to rise to 4.3%, up from a previous projection of 4.1%.
- 04The combined effect of fuel and milk price increases could raise inflation by approximately 42 basis points.
- 05The Reserve Bank of India targets an inflation rate of 4%, with a tolerance band of 2% on either side.
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Retail inflation in India is projected to rise by 15-20 basis points (0.15-0.20 percentage points) due to a recent fuel price hike. State-run oil marketing companies increased petrol and diesel prices by ₹3 per litre, the first increase in four years, amid escalating global crude oil prices linked to the ongoing conflict in West Asia. Economists note that petrol and diesel contribute 4.8% to the Consumer Price Index (CPI) basket, meaning the price hike could directly add 15 basis points to inflation, with additional pressures from transport and logistics costs potentially contributing another 10-15 basis points. ICRA forecasts May inflation to reach 4.3%, an increase from its earlier estimate of 4.1%. The combined impact of fuel and milk price hikes could lead to an overall inflation increase of about 42 basis points. The Reserve Bank of India aims for an inflation target of 4%, with a permissible range of 2% on either side. Experts suggest that the full effects of these price changes will manifest in the coming months.
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The fuel price hike will likely increase transportation and logistics costs, affecting prices of goods and services across the economy.
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