Rising petrol and diesel prices could rekindle inflationary pressures in the economy by increasing transportation, logistics and manufacturing costs, with the impact likely to be felt across food and consumer goods categories in the coming months, according to a Crisil report released on Tuesday.Petrol and diesel prices have risen by around Rs 7.5 per litre since May 15, and further increases remain possible if global crude oil prices stay elevated.“With oil marketing companies gradually paring their losses (or under-recoveries), cumulative hikes could move closer to Rs 10 per litre in the near term,” Crisil said, PTI quoted.“The broader effect will reverberate across the economy through higher transport costs, pushing up both food and core inflation.”According to the report, a Rs 7.5-per-litre increase in fuel prices could directly add around 36 basis points to Consumer Price Index (CPI) inflation. If cumulative increases reach Rs 10 per litre, the impact could rise to nearly 48 basis points.Beyond the direct effect, Crisil warned that higher fuel prices could spread inflationary pressures through freight and logistics costs.Road transport accounts for about 71 per cent of India’s freight movement, with fuel making up nearly 42 per cent of operating expenses.“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 report said.Food categories that depend heavily on transportation networks—including dairy products, tea, coffee, fruits, pulses, spices, eggs, meat and fish—are expected to face the greatest impact. Crisil said the fading of a favourable base effect could further accelerate food inflation in the coming quarters.The report also flagged risks to core inflation, as manufacturers grapple with higher costs for crude oil, petroleum products and natural gas, along with rising transportation expenses.Sectors such as clothing, consumer electronics, wood products and construction materials, including cement and ceramics, are among the most transport-intensive industries and could see stronger cost pass-through to consumers.Manufacturers of chemicals, coal and metal-related products may also face higher input costs. With demand conditions remaining relatively stable, companies may increasingly pass on these costs or resort to shrinkflation strategies to protect margins.Crisil noted that some of the inflationary impact could be cushioned by GST rate cuts announced in September 2025 on several mass-consumption categories, including electronics, automobiles, clothing, processed foods and fast-moving consumer goods.However, the report said the tax reductions are unlikely to fully offset the impact of persistently high energy prices.Crude oil prices have averaged around USD 112 per barrel during the first two months of the current financial year, significantly higher than Crisil’s base-case assumption of about USD 95 per barrel for the full year.While headline inflation remains below the Reserve Bank of India’s 4 per cent target, Crisil expects inflation to trend higher, though it is likely to remain within the RBI’s 2-6 per cent tolerance band.The report said the RBI may initially look through the supply-side impact of higher fuel prices but will closely monitor household inflation expectations and the risk of rising transportation and input costs triggering broader price pressures.The central bank is also expected to keep a close watch on weather-related risks, including forecasts of a below-normal monsoon and evolving El Niño conditions, which could further complicate the food inflation outlook.
