Bread To Hair Oil Set To Get Dearer As Input Cost Inflation Pinches

A packet of whole wheat bread, a bottle of hair oil, a tub of ice cream or be it a container of ghee—consumers are most likely to be paying more for each of them as companies look to increase prices to cover for all the input cost inflation.

Commodities, such as crude oil, soda ash and food ingredients like wheat and milk that remain significantly higher in comparison to the previous year. Even as a few key inputs have softened from peak levels, the higher prices in the overall commodity basket have offset the benefit. And the challenge is particularly acute in the food industry, said top executives.

"Wheat is one commodity that remains on the boil," Britannia Industries Ltd. Managing Director Varun Berry said in a post-earnings conference call earlier this month. "After the April–June quarter, we have seen a drop in the wheat prices. However, in India, which is a fairly insulated market, the prices have been only going up."

Companies have been largely absorbing higher input costs to aid demand, but they now look to pass on the burden as they chase profitability.

Still, the proposed price hikes will not be as significant as the consumers have seen in the last two years when inflation shot up to record levels and the local currency devalued at a higher pace than before.

The biscuit maker, for instance, is looking at a 2.5–3% increase in product prices. "I don't think there is going to be a substantial price increase," Berry had said.

"It will only be opportunistic whenever necessary for certain stock-keeping units as I don't think we are going to see the kind of inflation that we have seen in the last two years for some time to come. And I am hoping that I am right."

Hindustan Unilever Ltd., India' largest consumer goods maker, also feels that food inflation in the country continues, albeit at a slightly lower level.

"Leaving aside palm oil, we have not seen the receding of inflation," Chief Executive Officer Sanjiv Mehta told investors earlier this month. "This is evident when you look at inflation from a two-year lens."

For instance, barley prices are up 120%, skimmed milk powder increased by 50% and commodities like crude oil and soda ash are seeing close to 100% inflation when compared to the December quarter of 2020, he said.

"When you have this kind of inflation, then obviously, we will have to pass on the cost to the consumers," Mehta said, without saying how much or which ones will attract higher prices.

The other source of inflation has been the impact of rupee depreciation as the dollar keeps strengthening. "The concentrates that we are importing because of the currency devaluation of Indian rupee vis-a-vis dollar, that has become dearer, and, therefore, there's a gross margin compression in our food business," Dabur CEO Mohit Malhotra said.

The company has taken a price increase in the range of around 6.5% and just about 4–5% in the food segment as against the total inflation of 8.5% in the quarter ended December. It is in the process of taking price increases in the food as well as hair oil portfolio.

Price of milk has gone up by about 10% cumulatively and it is expected to push up prices of butter, ghee, cheese and ice-creams. Mother Dairy Mother Dairy Fruit and Vegetable Pvt. Managing Director Manish Bandlish expects the raw milk prices to increase further till October on higher fodder costs, putting pressure on retail prices.

However, not all companies are looking to raise prices immediately as the demand environment is still fragile.

Parle Products Pvt. Senior Category Head Mayank Shah said the company's overall input mix doesn't warrant a price increase at the moment even as certain commodity prices are inflated.

"I don't think there is any immediate requirement of price hikes for us," Shah told BQ Prime. "We have already raised prices to cover most of the inflation to offset the pressure on margins. Our focus is now to bring back demand."