The recent surge in crude prices has renewed concerns about inflation and losses for OMCs. Though petrol and diesel prices were hiked by Rs 3/litre last Friday, experts believe that there could be more to offset the impact on OMCs and this could fan inflation significantly.
IDFC First Bank stated that they expect the cumulative hike in fuel prices to go up to 10% over next few months. “Given the under-recoveries faced by OMCs, further increases in retail petrol and diesel prices are expected,” IDFC First Bank said.
One of the biggest impacts would be on inflation as a result. IDFC First Bank highlighted that just the Rs 3/litre hike in petrol and diesel prices could alone add around 12 basis points to headline inflation number.
May CPI inflation seen at 3.9%: IDFC First Bank
As per IDFC First Bank estimates, May CPI inflation to spike to nearly 3.9% from 3.48% reported in April. They are factoring in the Rs 3/litre fuel price increase in their estimates. They have also projected FY27 CPI at 4.9%, incorporating fuel price hikes and second-round inflationary effects across the economy.
Food inflation to rise
Food inflation is also expected to spike as farm input costs are set to increase as a result of the hike in fuel and gas prices.
Farm input inflation, based on WPI, rose 9.2% year-on-year in April 2026, mainly due to higher diesel and fertiliser prices.
Along with this, food inflation is also expected to see a spike due to expectations of an El Niño and below-normal rainfall.
“Daily food prices in the first half of May indicate a pickup in vegetable prices, reflecting the impact of high temperatures,” the IDFC First Bank report noted.
Higher WPI may push retail inflation higher
April WPI inflation rose to a 3.5-year high of 8.3%. However, given the surge in crude rates and fuel price hikes, IDFC First Bank adopted a cautious approach.
Though LPG prices were the biggest driver of wholesale inflation, metals and chemical prices also increased. IDFC First Bank said this signals growing input cost pressure for manufacturers.
WPI non-food manufacturing inflation rose to 5% in April from 3.7% in March, indicating that producers are facing higher costs.
According to the report, there is a strong correlation between wholesale inflation and core retail inflation. It added that the pass-through from WPI to CPI usually takes two to three months, suggesting that broader inflationary pressure may emerge in the coming months.
However, services inflation may remain relatively moderate because a large part of the fuel price burden is still being absorbed by the government and OMCs.
Conclusion
Economists expect petrol and diesel to increase further. They estimate multiple hikes over the next few months to account for the sharp surge in crude. The rise in oil and gas prices is likely to lead to an increase in inflation. The big question now is how the RBI would respond. All eyes are now on the RBI Policy announcement in June.