Inflation could singe Indian consumers as manufacturers hike prices

Kajaria Ceramics

28/10/2021 13:31

* Burden of costlier energy, raw materials passes to
consumers
    * Higher prices could hit demand, recovery from pandemic
    * Last quarter saw rises of 4% to 10% in some items of
consumption
    * Swelling transport costs could force more hikes 

    By Manoj Kumar and Chandini Monnappa
    NEW DELHI/BENGALURU, Oct 28 (Reuters) - Indian manufacturers
are raising prices to pass on to consumers some of the burden of
costlier energy and raw materials, which threatens to dent
demand as well as a recovery from the COVID-19 pandemic,
business leaders and economists say.
    Prices of items from tea, coffee and biscuits to toothpaste
and electric components have risen 4% to 10% in the last
quarter, while construction supplies, such as cement and
sanitary ware, have added as much as a fifth, they said.
    Big companies such as Hindustan Unilever  HLL.NS , Nestle
 NEST.NS , Procter & Gamble  PG.N , Ambuja Cement  ABUJ.NS  and
Kajaria Ceramics  KAJR.NS , have blamed the increases on higher
costs of oil and other raw materials.
    As the economy swings into gear after pandemic curbs
curtailed many activities over the last year, supply chain
disruptions are also helping to drive up prices.
    "This is a challenge, as India's economic recovery is still
not broad-based and the rising prices will hurt consumer
sentiment," said Kapil Gupta, chief economist at Mumbai
brokerage Edelweiss Securities.
    After keeping above the central bank's target range of 2% to
6%, annual retail inflation eased in September to 4.35%, helped
by a softening of food prices, which make up nearly half of the
consumer price index.
    But core inflation, excluding volatile prices of food and
energy, has remained near 6% for the last few months, reflecting
the rising manufacturing prices.
    Firms facing increases of 20% to 30% in transport costs
could raise prices further to maintain margins, say analysts, if
the government offers no relief on energy costs.      
    Until now, Prime Minister Narendra Modi's administration has
declined to cut fuel taxes that are the highest among the major
economies, at more than 100% of the base price.
    Those building homes or renovating them to remedy defects
made apparent during the pandemic-enforced curbs face a rise of
more than 10% in the cost of construction materials such as
paint, cement and steel.
    Kajaria Ceramics has raised the prices of its bathroom tiles
by about 7% and sanitary ware by 10%, while Asian Paints has
hiked product prices by 7% to 10%, analysts' reports showed.    
    "This time, the material increase has been fairly
unnatural," said Amit Syngle, the chief executive of Asian
Paints, warning that more hikes could be in store.
    Consumer goods maker Hindustan Unilever, which markets more
than 400 brands of food and beauty products, is struggling with
the prices of palm oil, tea, crude and skyrocketing costs of
shipping, said its chairman and managing director, Sanjiv Mehta.
 
    "The next few months will be critical to assess the
underlying market demand and determine whether these are
transient or structural," Mehta said after unveiling quarterly
results last week.
    Rural demand has slowed over the last two months, inspiring
further caution, he added.
    Private economists have warned that rising manufacturing and
energy prices could dent the recovery from a record contraction
of 7.3% in the fiscal year that ended in March 2021. 
    Consumer spending, which contributes nearly 55% of GDP,
would be hurt by the rising prices, said Radhika Rao, a senior
economist at DBS Bank.
    "This might hold back consumption beyond the spurt on
account of re-opening gains and festive demand, with employment
gains yet to fully percolate to the unorganised sectors," she
said, referring to celebrations around Diwali, the Hindu
festival of lights. 
    Worried by rising prices, some private economists, including
ratings agency Fitch, have cut growth forecasts to 8.7% for the
current fiscal year, down from nearly 10% earlier. 

 (Additional reporting by Abhirup Roy in MUMBAI and Chris Thomas
in BENGALURU; Editing by Sanjeev Miglani and Clarence Fernandez)
 ((manoj.kumar@thomsonreuters.com; +91(11) 49548029;))