Corporates mull hike in prices

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With the inflation hovering at 7.33% for the week ending April 12 and showing no signs of cooling down, interest-sensitive sectors like real estate, FMCG, automobiles and white goods are gradually feeling the heat and companies have started passing on the burden of the rising input costs to consumers. Apart from the increase in price of products, companies are reducing quantities in their packaging and are devising innovative measures to retain consumers. These are aimed at protecting their margins.

Says V Ramachandran, director, Sales & Marketing, LG Electronics India, “The prices of steel, copper and some petroleum derivatives have increased significantly in the last couple of months and as a result the costs of durables have gone up by 3-5%. This is affecting our margins. We have not increased the price of our products, but if costs increase further we will have to hike prices in due course of time.” He adds that the company had in fact increased the prices of some durables by 2-3% in December last year.

Economists feel that the current trend in inflation is broad-based and is driven by rising demand for agriculture, metal and fuel products and the spurt is clearly a case of supply shortages of agricultural commodities, steel and cement. Most experts agree that the current spiralling inflation is not a case where a lot of money is chasing too few goods, but a genuine case of supply shortages. “Present inflation is due to the mismatch in demand and supply of commodities at the global level,” says Subir Gokarn, chief economist, S&P, Asia Pacific.

In fact, globally the price of steel has increased by about 40% in the past one year on account of the rising demand for the metal in counties like China. The demand for the metal has gone up by three times in the last two years because of a sudden spurt in the construction activities. In India, steel companies after increasing the price of the metal in the past have now promised not to announce any increase in the prices of their products for a couple of months. This was after the prime minister hinted at cartelisation of the Indian steel companies.