Summer likely to see higher prices of durable with costly inputs and possible increase in transportation fuel

Buyers are facing a tough summer as Russia-Ukraine crisis has pushed the prices of not just crude but also of metals and minerals on an upward spiral. While consumer durables companies say that impact of rise in input prices is going to be high and this might lead to price rise, economists feel that possible hike in fuel prices will have impact on inflation rate in the immediate term.

Rate of retail inflation based on Consumer Price Index (CPI) is now above the targeted level of 6 per cent while producers’ inflation based on Wholesale Price Index (WPI) is a bit down but still in double digits for last two months. Though both of these indices have limited weight for fuel, fuel has a much wider indirect impact.

Inflation

According to Swati Arora, Economist with HDFC Bank, Russia supplies 10 per cent of the world’s fuel. Near-term pressure on oil prices remain as geopolitical tensions stay alive. Increase in fuel prices due to an increase in crude oil prices remains a risk on inflation. Rise in fuel prices is likely to have both direct impact and indirect impact (via increase in transportation costs) on inflation. “A 10 per cent increase in crude oil prices could increase (retail) inflation (direct impact) by up to 40-50 bps,” she said.

However, she is hopeful that crude oil prices are expected to moderate by second half of the year as supply catches up through the year and due to a reduction in global liquidity, providing some support to the inflation readings.

Consumer durables prices

Metals such as aluminium and steel are key inputs for consumer durables including automobile and electronic items like fridge, washing machine, air conditioners etc. Once the prices of inputs go up, companies have no option but to raise the selling price.

Kenichi Ayukawa, Managing Director and Chief Executive Officer, Maruti Suzuki India and President, Society of Indian Automobile Manufacturers, says “The whole industry is facing the impact of high commodities prices and we have been working on how to absorb that impact. Unfortunately, the impact is very high and we may pass on that to the customer, but not in the immediate future.”

Salil Kappoor, Business Head, Home Appliances, Orient Electric, said this could present a fresh set of challenges for the industry which has already been battling inflationary pressures since last one year. “Companies were hoping for some stabilisation in commodity inflationary pressures in the summer season. But further uptick in crude prices might have a cascading impact on costs of lot of commodities such as plastic. Metal-related commodity prices are already on a high,” he added.

Third wave impact

He further explained that due to the uncertainties linked to the third wave in January, full scale production of cooling products for many firms has begun only from February unlike in the past when it starts from December quarter. Hence for many companies any further rise in commodity costs could lead them to take fresh price hikes on cooling products which might impact demand in the critical summer season.

“We have been working on consumer benefits so that consumers can see value but brands that did not do that might face an uphill task in case of a price hike as consumers will lean towards stronger brands and better value proposition,” he said.

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