Economists warn petrol, diesel prices could jump further – Here’s the outlook

THE prices of petrol and diesel are expected to rise further, even by ₹10 per litre, economists are warning.

India’s state-run oil marketing companies (OMCs) — which account for nearly 90% of the domestic fuel retail market — raised petrol and diesel prices by over ₹3 per litre each on Friday. The move came as crude prices continued to surge amid US-Iran tensions and peace negotiations to end the West Asia war remained in limbo.

The increase in prices of fuel, cooking gas and milk is expected to push retail inflation up by 0.42% in the coming months, economists cautioned.

Fuel to be dearer

Financial services company Emkay Global predicted that the price of petrol and diesel may increase to ₹10 per litre in the near future for OMCs to absorb the crude shock.

In a report released on 15 May, it noted, “We expect hikes of ₹10/lt to cover roughly 50% of under-recoveries, either in one shot or via creeping hikes over 2-3 weeks.”

The report estimated that OMCs are currently losing ₹17-18 on every single litre of fuel they sell. This is even after the union government cut excise duty on fuel imports by ₹10 per litre on 27 March 2026.

Because they are absorbing these costs, OMCs are on track to lose a staggering ₹570 to ₹580 billion (₹57,000–58,000 crore) this quarter, making the business unsustainable.

To stop the bleeding, analysts at Emkay Global expect a price hike of ₹10 per litre to cover about half of the losses OMCs are facing. This hike can either be rolled out in one go or through smaller hikes rolled out over the next 2-3 weeks.

Inflation squeezing common person

Economist Santosh Mehrotra expects Consumer Price Inflation (CPI) to increase by 0.3% for every $10 hike in global crude prices.

“A $10 increase in international crude prices raises our current account deficit by about 0.3% of GDP, and simultaneously, that same ten-dollar impact on the consumer price index is roughly the same. So I am not surprised that the downward revision of the GDP estimate has already been made and that the upward estimate for the CPI has also been made,” Mehrotra told news agency ANI.

A few economists said that fuel price alone can lift the CPI by 0.15-0.25%, and milk price increase may lift inflation by another 0.26%.

Radhika Rao, senior economist and executive director at DBS Bank, told news agency PTI that given the weightage of petrol and diesel in the CPI basket, a 3-5 per cent increase likely adds 0.15-0.25% to the headline inflation.

Further, Megha Arora, director at India Ratings and Research, said the combined effect of petrol, diesel and milk prices is likely to increase the CPI inflation by around 0.42%.

"The actual impact is likely to be higher via the fuel user industry like transportation and others. However, the impact in May 2026 could be around 0.20%," Arora told PTI.

Before the fuel price hike announcement, Amul and Mother Dairy — India's largest dairy product retailers — hiked milk prices by ₹2 per litre, squeezing household budgets. The increase, the second in 13 months by the two dairy cooperatives in 13 months, is expected to prompt similar hikes by regional dairy companies.

In addition to the direct impact of the increase in fuel prices, indirect inflationary pressures are expected to pinch the common person through higher freight charges, cab and auto fares, logistics expenses 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 transportation and food costs.

"With higher pass-through to consumers, we expect CPI inflation to average 4.6-5.0%," Sinha told PTI.