The recent hike in petrol prices by over Rs 5 per litre by state-run oil marketing companies will hit the common man by increasing cost of living leading to cost push inflation, says experts.
Although the direct impact of fuel price hike on headline inflation will be low, the increase will have a bearing on prices of other items with rise in transportation cost.
"Since petroleum is an intermediary product, it enters into transportation cost. It will increase transportation cost and living cost. It will also result in cost push inflation leading to further price hike," CP Chandrashekhar, professor of economics, JNU told PTI.
The oil marketing companies on Saturday raised the price of petrol by over Rs 5 per litre evoking sharp reaction from political parties.
As regards the direct impact of price hike on inflation based on movement in the wholesale prices, Crisil Chief Economist DK Joshi said, "It will increase inflation by around 10 bps."
The rate of headline, based on monthly WPI, for April was 8.66%, down from 9.04% a month ago.
Inflation can reach double digit any time this year, Chandrashekhar said, adding "the government is trying to defend the rise in petrol prices by saying that it can't do anything because the decision is taken by oil marketing companies."
Commenting on the decision to raise petrol prices, Yes Bank Chief Economist Shubhada M Rao said, "based on the April inflation numbers, the direct impact of the petrol price hike on headline WPI inflation would be around 10 bps."
Given the current inflation level which is likely to remain elevated until November closer to 9% levels, Rao said, "we do expect the RBI to hike repo rate by another 50-75 bps during the course of the year."
Echoing views, Joshi said, "The RBI will have to increase the interest rates by 50 basis points in the course of year."
The Reserve Bank on May 3 raised its key lending rates by 50 basis points, for the ninth time since March 2010, to tame rising prices. Despite repeated increase in key policy rates, the inflation has remained much above the RBI's comfort level of 5-6%.
