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Volume IconWill India Inc pass on the rising input cost to consumers?

Rising crude oil prices, depreciating rupee and burgeoning raw material costs have put companies across sectors in a tight spot. Take a peek into this inflation conundrum and the effect on consumers

WPI inflation soars to 14-mth high; rises to 4.43% in May from 3.18% in Apr

Just as India decided to end all Covid-19 containment measures from March 31 and the economy started picking up the pace, Russia’s war in Ukraine put the brakes on growth recovery.
With the surge in prices of crude oil, steel, aluminium and food items, companies have limited options but to raise prices. Automakers are worried about further price hikes denting demand in segments like two-wheeler. FMCG companies are looking to offset the commodity inflation triggered by supply chain disruptions.
Real estate companies like Tata Realty and Shriram Properties have increased property prices in new projects by up to 8% and warned of more increases. Developers also expect borrowing costs to go up in the future.
However, it is too early to predict a drop in demand as it has been robust over the past year.

The situation does not look rosy in the auto sector either, which already witnessed several hikes. The passenger vehicle division of Tata Motors has been able to pass on only 50% of the impact of commodity price rise to the buyers. While the demand has been strong in passenger vehicles, commercial vehicles and two-wheelers have been in a prolonged slowdown.

Tata Motors is hiking prices of its commercial vehicle range by 2 to 2.5% from April 1, whereas Mercedes Benz India announced an upward revision of around 3% in its entire model range.
Domestic airfares have also gone up significantly as jet fuel prices reached a record high. But a strong recovery in air travel has provided a cushion for the sector.

When it comes to the FMCG sector, another round of price hike is in the offing. Products ranging from biscuits to shampoos to detergents have gotten costlier, and the ongoing war has only made things worse.
The sector is worried about demand taking a hit if prices rise further.
Venkatesh Vijayaraghavan, CEO of FMCG major CavinKare said, volume growth has been tapering and consumers are also holding back their consumption. Dabur India CFO Ankush Jain voiced a similar sentiment, pointing to consumers relooking at their discretionary purchases while also downtrading to smaller packs.

As consumption remains unstable in rural areas and smaller cities, companies are cautious in passing on the full impact raw material inflation. For now, they are choosing to hike prices in phases and with some lag, hoping for commodity costs to stabilise over the next few months.

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First Published: Mar 24 2022 | 8:15 AM IST

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