Any hike in fuel prices could take longer than expected, as the prime minister?s office and the Congress high command feel the price increase can wait till food inflation starts moderating.

Economists said inflationary pressure on food items may continue for another two months or till the size of Rabi crop is known. Annual food inflation stood at 18% in the last week of January.

A meeting between petroleum minister Murli Deora and finance minister Pranab Mukherjee on Sunday afternoon to discuss fuel price revision remained inconclusive. The government could not muster courage to hike prices in the face of protests from key allies in the ruling coalition, DMK and Trinamool Congress and also from a few chief ministers. The delay in price rise would strengthen the petroleum ministry?s case for higher subsidy payments this fiscal to oil marketing companies IOC, HPCL and BPCL that sell fuel at government-set prices to protect consumers.

Asked about the possibility of finance ministry agreeing to another round of subsidy payout to compensate state-owned oil retailers, petroleum minister Murli Deora told FE, ?The commitment to fully compensate oil marketing companies for their under-recoveries is very much there. The core committee of Congress party has also committed this.? On the timing of further subsidy issue or a possible fuel price hike, the minister said no decision was taken on these two issues at Sunday?s meeting. Official sources said the PMO did not favour a decision on revising fuel prices at this juncture, as food inflation continued to be a cause for concern.

The idea is to defer fuel price hike till it?s clear that the political reaction to it can be tempered.

The Kirit Parikh Committee had recommended total freeing of petrol and diesel prices and raising domestic LPG and kerosene prices by Rs 100 a cylinder and Rs 6 a litre, respectively.

State-owned retailers are expected to lose Rs 45,000 crore this fiscal on sales of petrol, diesel, domestic LPG and kerosene below cost. The finance ministry so far announced Rs 12,000 crore in cash subsidy to the troubled companies. Issue of bonds worth Rs 10,306 crore was projected in the 2009-10 budget. The government also provided another Rs 3,109 crore through budget allocation for subsidizing LPG and PDS kerosene and for selling kerosene in far flung areas. This government?s share of subsidy this fiscal is 82% less than the subsidy given through oil bonds in the previous fiscal that saw a huge spike in global oil prices.

Sources indicated that despite the economic urgency to salvage the bleeding state-run oil firms and rationalise the government?s burden on compensating them, a more opportune time for fuel price revision would be when food prices ease and chances of political backlash is less.

Prime Minister Manmohan Singh had told state chief ministers earlier this month that the ?worst is over as far as food inflation is concerned.? But food may not actually get cheaper before several weeks. Singh then told chief ministers to open up the retail sector, step up farm productivity and reduce local taxes on food items that account for 10%-15% of retail prices. The Prime Minister said he expected the trend of softening of food price ?in recent weeks to continue.?

Crisil?s principal economist DK Joshi told FE that food articles may continue to be under inflationary pressure for another two months. After that, it might ease depending on Rabi output. ?The only way to ease food price inflation is to enhance supply and provide a safety net by making food available to the poor at low prices,? said Joshi.

In the week ending January 30, inflation in food items inched further up from what was recorded a week ago. Annual inflation in pulses as well as potatoes stood at 41%, 21% in vegetables and 12% in cereals. The government?s hopes to stabilize food prices rely on improved rains after monsoons that might bless Rabbi crop and remunerative procurement prices that would act as an incentive for aggressive farming.

IOC, BPCL and HPCL now sell petrol at a loss of Rs 4.72 a litre, diesel at Rs 2.33 a litre, kerosene at Rs 18.06 a litre and domestic LPG at Rs 287.59 a cylinder.