Gasoline and diesel prices should continue to rise, including ₹10 per liter, economists warn.
India’s state-owned oil marketing companies (OMCs) – which account for nearly 90% of the domestic retail fuel market – have hiked petrol and diesel prices by more than ₹3 per liter every Friday. The move came as oil prices continued to rise amid tensions between the US and Iran and peace talks to end the war in West Asia remained in limbo.
Rising fuel, cooking gas and milk prices are expected to push retail inflation up 0.42% in the coming months, economists warned.
Fuel to make it more expensive
Financial services company Emkay Global has predicted that the price of petrol and diesel could rise to ₹10 per liter in the near future for OMCs to absorb the brunt of the shock.
A report issued on May 15 said: “We expect an increase ₹10/lk to cover roughly 50% of the shortfalls, either in one go or through creep hikes over 2-3 weeks.”
The report estimates that open methods of coordination are currently losing out ₹17-18 for every liter of fuel they sell. And that even after the Union government reduced the excise tax on fuel imports ₹10 per liter on March 27, 2026.
Read also | Is the ₹3 hike in fuel price enough to offset OMC’s mounting losses?
Because they absorb these costs, open coordination methods are well on their way to a staggering loss ₹570 to ₹580 billion ( ₹57,000 to 58,000 crore) in this quarter, making the business unsustainable.
To stop the bleeding, analysts at Emkay Global expect price hikes ₹10 per liter to cover about half of the losses faced by OMC. This hike can be done either all at once or through smaller hikes over the next 2-3 weeks.
Inflation squeezing the common man
Economist Santosh Mehrotra expects consumer price inflation (CPI) to increase by 0.3% for every $10 increase in global oil prices.
“A $10 rise in international oil prices increases our current account deficit by about 0.3% of GDP and at the same time the same $10 impact on the CPI is about the same. So I am not surprised that there has already been a downward revision to the GDP estimate and an upward revision has also been made to the CPI,” Mehrotra told news agency ANI.
Several economists said the price of fuel alone could lift CPI by 0.15-0.25%, and a rise in milk prices could lift inflation by another 0.26%.
Radhika Rao, Chief Economist and Managing Director, DBS Bank told news agency PTI that given the weight of petrol and diesel in the CPI basket, the 3-5 per cent rise is likely to add 0.15-0.25 per cent to headline inflation.
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Further, Megha Arora, director of India Ratings and Research said that the combined effect of petrol, diesel and milk prices is likely to increase CPI inflation by around 0.42%.
“The actual impact is likely to be higher through fuel user sectors like transport and others. However, the impact in the month of May 2026 could be around 0.20%,” Arora told PTI.
Ahead of the fuel price hike announcement, Amul and Mother Dairy – India’s largest dairy retailers – raised milk prices by ₹2 per litre, which puts pressure on household budgets. The increase, the second by two dairy cooperatives in 13 months, is expected to prompt similar increases by regional dairy companies.
Apart from the direct impact of the increase in fuel prices, indirect inflationary pressures are expected to squeeze the common man through higher transport charges, taxi and auto fares, logistics costs and agricultural input costs.
Rajani Sinha, chief economist at CareEdge Ratings, said the direct impact of the fuel hike on inflation could be around 0.15%, while indirect effects may add another 0.10-0.15% through higher transport and food costs.
“With higher pass-through to consumers, we expect CPI inflation to average 4.6-5.0%,” Sinha told PTI.
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