Petrol, Diesel, LPG Price Cuts May Ease Inflation By About 10 Bps, Say Economists
Since oil marketing companies will take all the hit, the fiscal impact of the petrol and diesel price cuts will be nil, said Emkay's Madhavi Arora.
The recent diesel, petrol cuts along with the cut in LPG prices, could aid in pushing inflation to sub-five percent over the coming months, according to economists who spoke to NDTV Profit.
Oil marketing companies cut petrol and diesel prices by about Rs 2 per litre across the country, with new prices coming into effect on Friday. Last week, LPG cylinder prices were also cut by Rs 100.
The cut in petrol and diesel prices will have a five-basis-point impact on inflation, possibly a little more after taking into account the second-round impact, said Teresa John, economist at Nirmal Bang Institutional Equities. The impact of an LPG price cut would be similar at around five to six basis points, John said.
The impact of the cuts should be minimal at around seven basis points for now, concurs Suvodeep Rakshit, senior economist at Kotak Institutional Equities. "But it does increase expectations of further price cuts over the next few weeks," Rakshit said. The LPG price cut will have a slightly larger impact of around 15 basis points, he said.
Overall, the cuts should ease some pressure on the middle and bottom sections of the consumer pyramid.
India's headline retail inflation was at 5.1% in February 2024. The high frequency food price data for the first 10 days of March indicate that headline inflation is currently tracking at similar levels as February, with lower prices for cereal and pulses being offset by higher prices on key vegetables. The recent cuts to diesel, petrol and LPG, along with a pick up in rabi sowing will aid lower inflation prints over the coming months.
The reduction in petrol and diesel prices will boost consumer spending and reduce operating costs for over-sized vehicles, the Ministry of Petroleum said in a post on social media platform X. "Reduced petrol and diesel prices will also benefit citizens through reduced expenses for businesses dependent on logistics, manufacturing, and retail sectors, along with reduced outgo for farmers on tractor operations and pump sets."
In Mumbai, diesel prices have been revised to Rs 92.15 per litre, compared to Rs 94.27 a litre earlier.
In Delhi, diesel prices have been revised to Rs 87.62 per litre vs. Rs 89.62 a litre earlier.
Petrol prices in Mumbai have been revised to Rs 104.21 per litre from Rs 106.31 per litre earlier.
In Delhi, diesel prices were lowered to Rs 92.72 per litre from Rs 94.72 a litre.
Fiscal Impact: Nil
It is noteworthy that since oil marketing companies will take all the hit, the fiscal impact of the petrol and diesel price cuts will be nil, said Madhavi Arora, lead economist at Emkay Institutional Equities.
