Fuel Prices To Jump By Rs 10/Litre? Experts Warn Of Cumulative Hikes In FY27 Amid War-Led Inflation

Amid the ongoing US-Iran war led inflationnary spike on the domestic economy, experts have warned that the government may eventually hike retail prices of petrol and diesel in the next few months. In an exclusive interview with NDTV Profit on Tuesday, May 19, Gaura Sengupta, Chief Economist, IDFC First Bank suggested that the cumulative fuel price hike in the current financial year 2026-27 (FY27) will be around Rs 10 per litre, spread across the next few months. 

Sengupta explained that the impact of the latest fuel price hike will be built in May inflation data, however, the secondary pass through will take time. The impact may also be seen in June and July consumer price index-led inflation. According to the economist, India's inflation is expected to average around 4.9% in FY27, assuming that the Iran war eases. Despite that, the restoration of global crude oil supply from the Persian Gulf to Asian importers will take time to even out in the next few months.

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More fuel price hikes ahead? Here's what experts warn

Days after announcing a standard Rs 3 per litre price hikes in diesel and petrol, India's state-run oil marketing companies (OMCs) have introduced another hike of 90 paise on Tuesday, taking the total price hike in fuel prices to Rs 3.9 per litre. The hike in domestic prices come as OMCs have been bearing the brunt of elevated global crude oil prices due to the broader supply disruptions amid the Persian Gulf's Strait of Hormuz blockade that has destabilised energy markets worldwide.

MK Surana, former Chairam and Managing Director of state-run OMC Hindustan Petroleum Corp Ltd (HPCL) also told NDTV Profit that the government is following a caliberated approach on fuel price hike and is trying to protect the consumer from price shock 'as much and as far as possible'. Surana explained the second 90 paise hike was not enough amid the rise in global crude prices. However, the government is keeping its options open for further fuel price hikes, he added.

IDFC First Bank's Sengupta, the current global crude price surge and the effective hike in domestic fuel prices is much more severe than what in 2022 during the beginning of the Russia-Ukraine war. ''Global crude price has gone from around $70 to $110 per barrel since the start of the war in February. So, we expect the cumulative fuel price hike to Rs 10 per litre including the Rs 4 per litre increase that has already been announced,'' she said. The inflation impact will be spread out this month.

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Will RBI hike rates on renewed inflation spike?

According to Sengupta, the RBI will step in if the supply-side measures don't work in the next few months. However, she maintains that the fiscal policy will be the government's top priority to aleviate the crisis. ''Interest rate hikes will be the government's last resort. The Iran war situation should normalise in the next few months as it is the interest of the US that prices pressures subside. The expectation is that the Indian crude basket should average around $90 per barrel in FY27.''

Production supply of crude oil is impacted in the GCC countries which will take some time to ease, she added. Despite the crude supply disruption concerns, Surana added that Middle East countries are holding onto a lot of crude oil inventory which have not been released into the markets yet. Depending upon the balance of the two factors and the near-term outlook of the war-led inflation, the Indian OMCs will eventually decide the changes in domestic fuel prices this year, he explained.

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