Consumer Goods Will Be Costlier

It seems that the inflationary pressure in India will not be released easily and will continue to pinch the common man for quite some time. It showed signs of cooling down from the beginning of 2012 but now it again seems that inflationary concerns are biting into the economy. The wholesale price index (WPI) which hovered around double digits last year has come down significantly to the 7 per cent levels.  However, for the month of February 2012 the WPI increased by 40 basis points to 6.95 per cent while the consumer price index (CPI) increased by 118 basis points to 8.83 per cent on a MoM basis.

The next big blow which will further fuel inflation was the increase of excise duty and service tax in the Union Budget, coupled with crude oil remaining above USD 120 per barrel. There are expectations that the petrol and diesel prices will soon be hiked and this will push the inflation level higher.

Source : Economic Times

Therefore, it is but obvious that the prices of various products would be costlier going ahead. As per a report in Economic Times, FMCG companies have already started to hike their product prices or are in the planning stage to pass some of these rising costs to the consumers.

According to the report, the prices of packed milk, biscuits, yoghurt, edible oil, hair oil, soaps and detergents, etc are set to rise in the range of 5 to 10 per cent in the next couple of months. Earlier, FMCG companies had got some relief from the input cost as the raw material prices had started to come down gradually. For protecting their margins, players in the past couple of quarters had resorted to some cost-cutting techniques like reducing their other expenses, lowering advertising expenditure, etc.

The companies had a mixed volume and price growth in the past couple of quarters and it seems that this will continue going ahead too. Further, the standardised packs would probably be effective from July 1, 2012. An approximately 60 per cent of the total revenue of FMCG companies comes from products worth Rs 10 or less. This could further change the weights and the prices of the existing products. For more information read our Mindshare article titled ‘Government’s Rule On Standardised Packaging – A Good Or A Bad Move?’

The March quarter results of most of the companies would be good on the back of strong consumption demand coupled with prices of most of the products remaining stable on a sequential basis. It was expected that the prices of the products would remain at the same level and the players might see volume growth going ahead. But with the inflationary pressure beginning to increase, this may not be the case any longer. At last, the sector will perform well going ahead, but the rise in cost will affect the consumers.