Fuel inflation: Petrol and diesel prices hiked

It is not the first time that the government has hiked petrol and diesel prices in the run-up to the budget. On July 1, the government announced a Rs 4/litre increase in petrol prices and Rs 2/litre for diesel. That amounts to a price hike of 10% and 7% respectively.

The government says that the marketers will still be making losses on retail fuel. The actual losses per litre of petrol and diesel sold are Rs 6/litre and Rs 3.6/litre respectively. And the losses on selling liquefied petroleum gas and kerosene are quite high, at Rs 30,000 crore during the financial year. It’s a good development for the PSUs as their losses for the second quarter will be lower.

But it’s a different matter for the economy, as higher fuel prices have a ripple effect on other commodities. A price hike for diesel will usually translate to higher freight costs. Commodity prices too have been rising across the board. While the base effect ensures that the hike is not seen when comparing with last year’s figures, eventually this will start reflecting in inflation numbers too. As it is, food inflation numbers have been worryingly high and may start going higher.

The press release on the price hike.

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