India: Fuel price hike and inflation dynamics – DBS

DBS Group Research’s Radhika Rao notes that India’s latest fuel price hike reflects higher global crude costs and aims to moderate domestic demand and imports. She contrasts a benign April CPI print with a sharp acceleration in wholesale prices, highlighting rising cost-side pressures for businesses and the potential impact of higher petrol and diesel prices on the CPI basket.

Fuel hike and wholesale inflation pressures

"India raised fuel prices on Friday morning, with petrol and diesel prices up around INR 3/litre, which takes petrol prices higher by INR3.14/l up to INR 97.77/l across several cities, while diesel prices climbed by INR 3.11/litre to as high as INR 90.67/l, according to the press release."

"Higher pump prices are likely to aid in moderating demand and consequently the import burden."

"Given the weightage of petrol and diesel in the CPI basket, with a ~3-5% increase likely to add ~15-25bp to the headline."

"In contrast to the benign April CPI report (see note), the wholesale price gauge rose by the fastest pace in three and half years in April, up 8.3% yoy from 3.9% month before."

"This points to rising cost-side pressures faced by businesses, through an increase in input costs, logistics etc."