The rise in petrol and diesel prices will spoil the household budget.
Due to increase in prices of petrol and diesel and increase in import duty on gold and silver, retail inflation may increase to about five percent by June. However, economists believe that the Reserve Bank of India (RBI) will adopt a wait and watch policy to assess the situation before making any changes in interest rates. In the period of 11 days starting from May 15, the prices of petrol have increased by Rs 7.38 per liter and diesel by Rs 7.48 per liter.
According to analysts, this increase in fuel prices will have a direct impact on inflation by increasing the cost of sectors like transportation, storage and partly electricity. Apart from this, the government has increased the import duty on gold and silver to 15 percent on May 13. In this way an attempt has been made to curb unnecessary imports of precious metals.
Retail inflation will increase
DK Srivastava, Chief Policy Advisor, EY India, said that an average increase of Rs 7.5 per liter in the prices of petroleum products could lead to an increase of about 0.75 percent in retail inflation. Retail inflation may remain in the range of 4-4.5 percent in May, 2026 and 4.5-5 percent in June. He said that since this increase in inflation is cost based, the impact of change in repo rate may be limited. However, if inflation goes above five percent and shows an upward trend, the central bank may increase rates.
MPC meeting on June 5
Megha Arora, director of India Ratings and Research, said retail inflation may go above four per cent in June, but is likely to remain within the RBI’s upper satisfactory level of six per cent. Economists estimate that in the meeting of the Monetary Policy Committee (MPC) of RBI to be held on June 5, a neutral stance can be maintained by keeping all the major policy rates unchanged.
Wholesale price index (WPI) based inflation reached a 42-month high of 8.3 percent in April, while consumer price index based retail inflation stood at 3.48 percent.
Interest rates may increase
Aastha Gudwani, Chief Economist, Barclays India, said that the persistence of current uncertainties could lead to increased inflationary pressure through transport costs and raw material prices, which may necessitate an increase in interest rates in the second half of the financial year 2026-27. CRISIL chief economist Deepti Deshpande said that the average inflation in the current financial year is expected to be 5.1 percent. ICRA Ratings Chief Economist Aditi Nair said that the fuel price increase will have a major impact on inflation in June and a possible increase in rates may happen in the second half of the financial year.
