Several economists indicated that the increase in fuel prices alone could raise retail inflation by 0.15-0.25%, while the surge in milk prices may contribute an additional 0.26% to inflation.
Radhika Rao, senior economist and executive director at DBS Bank, mentioned that due to the significant weight of petrol and diesel in the CPI basket, a 3-5% increase is expected to add 0.15-0.25% to the overall inflation, along with potential second-round effects.
In a report, economists at SBI noted that the immediate implications for CPI inflation are estimated to be around 15-20 basis points in May-June 2026.
”We have adjusted our FY27 forecast to 4.7%. This increase does not directly affect the fiscal scenario,” the report stated.
Additionally, Megha Arora, director at India Ratings and Research, pointed out that the combined impact of petrol, diesel, and milk prices is likely to push CPI inflation up by approximately 0.42%.
”The actual impact might be greater due to effects in fuel-dependent sectors such as transportation. However, for May 2026, the expected impact could be around 0.20 percent,” Arora added.
On Friday, petrol and diesel prices were raised by ₹3 per litre after state-owned oil companies ended a four-year hiatus in price adjustments. The petrol price increased to ₹97.77 per litre from ₹94.77 in the national capital, while diesel is now priced at ₹90.67, up from ₹89.67 per litre, according to industry sources.
This increment is only a fraction of the necessary increase to accommodate the rise in global energy prices since the onset of the conflict in West Asia.
Previously, Amul and Mother Dairy – India’s leading dairy product retailers – increased milk prices by ₹2 per litre, exacerbating inflationary pressures already intensified by the ongoing war and impacting household budgets. This is the second increase by the two dairy cooperatives within 13 months, likely prompting similar price hikes from regional dairy businesses.
Economists also warned of indirect inflationary pressures mounting due to higher freight charges, rideshare and auto fares, logistics costs, and agricultural input expenses.
Rajani Sinha, chief economist at CareEdge Ratings, suggested that the direct effect of the fuel price hike on inflation could be around 0.15%, with indirect effects potentially adding another 0.10-0.15% driven by escalating transportation and food costs.
”With increased pass-through to consumers, we anticipate CPI inflation to average between 4.6-5.0%,” Sinha remarked.
Sinha further cautioned that rising wholesale price inflation might trigger second-round effects, where increased producer costs gradually translate to retail prices over time. CareEdge Ratings has revised its FY27 wholesale price inflation forecast upward to 7.8%.
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