The fuel and milk price hikes are likely to increase retail inflation by up to 50 basis points from June, according to analysts’ estimates. The government on Friday announced a Rs 3 a liter increase in pump prices of petrol and diesel. CNG prices have already been increased by Rs 2/kg, while Amul and Mother Diary have announced a Rs 2/liter hike in milk prices effective Thursday.
Aditi Nayar, chief economist at ICRA Ratings, expects the fuel price hike to push up the average CPI inflation print by 25 bps on an annualised basis. “Since the hike was effected mid-month, the impact will be better reflected in the June CPI print. We are now revising our forecast for May inflation to 4.3% from 4.1%,” she said.
As per the new Consumer Price Index (CPI) series, fuel and light has a weightage of 5.5%. As per the monthly household consumption data, urban households spend 7% of their monthly consumption budget in milk and around 5.5% in fuel and light.
Megha Arora, a director with India Ratings, said in a note that the combined effect of fuel and milk price hikes is likely to increase the CPI inflation by around 42 bps. “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 20 bps,” she said.
“The actual impact on CPI inflation is likely to be higher given the fuel price increase will affect the price of CNG, transportation, freight, e-commerce industry and diesel users including coastal fishing and aqua farmers, among others,” she said.
This pass-through effect of the fuel price hikes is likely to increase CPI inflation by 15 bps, she said, adding diesel hike is likely to be felt wider given its usage in transportation, boats for coastal fishing, tourism, e-commerce industry, and for running aerators by aqua farmers, among others.
But according to Arora, the milk price increase due to rising expenses related to cattle feed and packaging will have more impact on inflation leading to the CPI getting a bump up of 26 bps.
Arora feels that if global crude price remains elevated, additional price hikes cannot be ruled out given the fiscal pressure on the government and losses borne by OMCs. The retail inflation in May could inch up to 3.8%.
Radhika Rao, senior economist at DBS Bank says: “Higher pump prices are likely to moderate demand and consequently the import burden. Given the weighting of petrol and diesel in the CPI basket, a 3-5% increase likely adds 15-25 bps to headline inflation, besides second-round impact.”