Indian manufacturers are running out of capacity to absorb rising input costs and companies across sectors are raising prices in response to the global supply disruptions and oil price surge due to the Russia-Ukraine waraccording to a report.
Companies from the Indian units of Unilever Plc and Suzuki Motor Corp to homegrown JSW Steel are raising prices in response to the global supply squeeze made worse by the surge in energy costs following Russia’s invasion of Ukraine. Higher retail fuel prices are also threatening to hurt demand just as the economy returned to its first full-year of growth after the pandemic-induced 6.6 per cent contraction in the fiscal year ended March 2021, the Bloomberg report said.
The rate hikes by companies come at a when inflation is already hovering above Reserve Bank of India’s comfort levels and it could push inflation numbers even more upwards. The Monetary Policy Committee will meet this week between April 6 and 8 and it already faces the high commodities prices problem in the economy. The policy makers may revise its inflation target for the current financial year.
The current inflation rate of 6.07 per cent in February is outside the RBI’s mandated target of 4 per cent, with a (+/-) 2 per cent band.
“While not acknowledged by the central bank yet, there is telltale evidence of inflation likely being much higher,” Kunal Kundu, an economist with Societe Generale GSC Pvt, was quoted in the report as saying. That “can further imperil consumer confidence.”
In the report, Deutsche Bank AG economist Kaushik Das was also quoted as saying that inflation may turn out to be a bigger risk for India than growth over the coming quarters, if not dealt with at this stage using various monetary policy tools.
An analysis of RBI data shows that raw material expenditure for manufacturing companies increased 37 per cent in the three months to December 2021 as compared to the year-ago period. These expenditures account for more than 63 per cent of their total expenditure.
“We see our profitability come under stress,” said Shashank Srivastava, senior executive director for marketing and sales at Maruti Suzuki India Ltd, the nation’s largest car-maker. “We are watching the situation and not ruling out further prices hikes.”
The retail inflation marginally increased beyond the central bank’s comfort zone of 2-6 per cent to stand at 6.07 per cent in February. In the previous policy review in February, the RBI retained its inflation projection for 2021-22 at 5.3 per cent, with Q4 at 5.7 per cent on account of unfavourable base effects that ease subsequently. However, it expected the CPI reading for January 2022 to move closer to the upper tolerance band, largely due to adverse base effects.
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