Attributing the steep hike in petrol prices to declining value of rupee, the Planning Commission on Wednesday said it will have immediate impact on the price situation but things will stabilise in the long run.
“It will have immediate impact on prices, but will not have knock-on impact on prices. This in one time price adjustment. It will not have cascading effect,” Planning Commission Member Abhijit Sen said.
In view of the impact of declining value of rupee, which touched Rs 56 to a dollar, the state-owned Oil Marketing Companies (OMCs) raised petrol prices by over Rs 7 a litre.
ADVERTISEMENT
The hike, he said, “will not even result in 50 basis points (0.5 per cent) increase in headline inflation. This is happening because of rupee depreciation in the recent times”.
The retail inflation (Consumer Price Index) for April was 10.36 per cent, up from 9.38 per cent a month ago. The inflation based on movement in wholesale prices (WPI) moved up to 7.23 per cent from 6.89 per cent in March.
Expressing similar opinion, D K Joshi, chief economist CRISIL said: “Petrol doesn’t have much impact on wholesale price based inflation as it does not have much weight in the index.
ADVERTISEMENT
“It is not like diesel which is a transport fuel. The impact will be muted. But the increase has been very sharp.
I think the WPI inflation will be impacted below 15 basis points”, he said.
Jagannadham Thunuguntla, head of research, SMC Global Securities said, “the hike has been quite steep than expected.
We can see WPI based inflation in the range of 8-9 per cent”.
The price rise, he added, “will benefit the state-run oil marketing companies and their stock prices will increase tomorrow. The government may think of diesel price deregulation following this as Parliament session is over,” he said.