Fuel price hike may push inflation close to double digit. With sharp increase in prices of petroleum products, economists say inflation is bound to cross a 13-year high of 9%, from the current level of 8.1%.
"It could cross 9% in the near-term owing to the hike in petrol and diesel prices," HDFC Bank chief economist Abheek Barua said. Besides, the base effect is also not favourable as the inflation is being calculated at the lower base, he added. The base effect relates to inflation in the corresponding period of the previous year, when it remained almost flat.
Petrol price was on Wednesday hiked by Rs 5 per litre, diesel by Rs 3 a litre and cooking gas by Rs 50 a cylinder. Petroleum secretary M S Srinivasan said that the hike could lead to about 0.5-0.6% rise in inflation rate. Petrol and diesel prices, which have gone up by 11% and 8.5% respectively, will increase the inflation rate by about 0.3%, while LPG cylinder would add 0.2-0.3% to the rate.
Besides, there would be cascading effect of diesel price rise on commodities in due course of time by way of higher transportation cost, resulting in further pressure on inflationary expectations.
According to Crisil’s principal economist D K Joshi, headline inflation could definitely cross 9% in the week to come when data would capture the oil price hike.
Echoing the view, Lehman Brothers India economist Sonal Varma said "we expect inflation to cross 9% in the coming weeks". Referring to cascading effect of diesel price hike, Barua said that in the next three to four months the second round of impact would be visible, which could increase the rate of inflation by another 0.3%.
"It would be in the form of rise in freight charges, leading to increase in prices of many commodities like automobile, FMCG, fruits and vegetables, iron and steel," he said.
Last week, FM P Chidambaram had said that any increase in administered prices of petrol would have moderate inflationary impact in the short term, but its effect on prices in the long term could not be predicted as there would be a cut in expenditure under some heads as well. Petrol has a weight of 0.88%, while diesel has a weightage of over 2% in the Wholesale Price Index, on the basis of which inflation is calculated.
Inflation figures are released with a lag of around two weeks. As such, the impact of petroleum price hike would be reflected in the official data to be announced on June 20
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