Rising energy costs are likely to drive up retail prices across India
Of late, the concept of ‘Apparent Temperature’, also known as ‘feels like’ is being much discussed as the sweltering sun appears to radiate more heat than that displayed by the thermometer. The ‘Apparent Temperature’ is the temperature equivalent perceived by humans and caused by the combined effects of air temperature, relative humidity and wind speed. This ‘feels like’ temperature indicates how the weather actually feels on one’s skin. As per the Ministry of Statistics and Programme Implementation data, the annual retail inflation rate in India is 3.48% (provisional) as of April 2026, slightly up from 3.40% in March. The Consumer Food Price Index (CFPI) also rose to 4.20%. All this data, however, ‘feels like’ much lower, if one considers the current market prices of essential commodities. The ongoing series of hikes in the prices of petrol and diesel no doubt will fuel inflation further.
Fuel costs actively fuel inflation through a classic cost-push mechanism, where soaring crude oil prices translate into higher retail fuel, besides transport and manufacturing costs. As transportation becomes more expensive, the added costs cascade through supply chains, ultimately inflating the retail prices of consumer goods and food. The government allowed the oil companies to increase the fuel prices after the recent assembly elections in four states and a Union territory, and the first hike resulted in Rs 3 rise per litre for both the fuels. The oil companies came up with the second hike within a week making both petrol and diesel dearer by 90 paise. The two hikes have definitely burdened the public already grappling with rising living costs.
It is no longer a secret that India imports over 85% of its crude oil requirements, thus making it the world’s third-largest oil consumer and importer. This massive dependence on foreign fuel significantly impacts the nation’s trade deficit, forex reserves and vulnerability to global supply shocks. The global oil prices have surged pushing Brent crude above $110 per barrel due to the ongoing conflict between Iran and the US-Israel coalition, which led to the de facto closure of the Strait of Hormuz. Almost 20% of the world’s daily oil supply passes through this narrow maritime chokepoint, and the blockade caused severe supply fears and drove up energy costs worldwide. India was naturally among the affected nations.
India successfully leveraged its long-standing diplomatic ties with Iran to secure oil during the ongoing Middle East conflict. By taking advantage of this relationship, Indian oil tankers and commercial vessels were granted safe passage through the tense Strait of Hormuz when ships from many other nations faced severe restrictions. This ensured non-stop supply of fuel to India. However, maintaining the fuel prices stable became financially unsustainable to the oil companies, after they managed the trapeze act for 11 weeks. The oil marketing companies had also announced a massive hike of Rs 993 for 19-kg commercial LPG cylinders on May 1. All these hikes, no doubt will have an impact on retail inflation that could soon spill over into household budgets.
Once the Middle East conflict ends, the petrol and diesel prices are unlikely to return to pre-conflict ‘normal’ levels due to massive oil company deficits, and Iranian attacks on oil refineries across the Middle East. Once conflicts ease, crude prices may drop, but retail costs will typically stay elevated as governments and retailers recoup losses and restore margins. Now the time has come for the consumers to conserve fuel in all seriousness.
