Hindustan Times ST (Mumbai) - HT Navi Mumbai Live
Indians cut spending on everyday items
NEW DELHI: Hammered by rising prices, millions of households have cut spending on everyday items — from toothpastes to soaps — even as some of India’s biggest consumer-goods companies are seeing their margins squeezed by falling demand and slowing sales, on one side, and rising raw material prices on the other.
Companies have raised prices of nearly everything, from packaged noodles to detergents, mainly because of cost-push inflation, which refers to higher prices of raw materials.
Sales of everyday items are plummeting, with a larger cutback in rural areas, according to a latest report by trade-intelligence firm Bizom, which tracks more than 7 million general stores.
Households are shifting towards smaller packages or cheaper alternatives to save money, as pricier oil and broken supply chains exacerbated by the Ukraine conflict stoke inflation in rich and developing economies.
Retail inflation in India quickened to 6.95% in March, a 17-month high, driven by a sharp jump in food prices, official data released on Tuesday showed. US inflation has hit a record 18%, while UK saw consumer prices climb to 7% last month.
Households have been warned to brace for more inflation. The Reserve Bank, in its latest update last week, said it expected inflation to rise sharply to 5.7% in FY23, up from its previous forecast of 4.5%. A rise in food prices impacts poorer households more because they tend to spend a higher proportion of their budgets on food than the well-to-do.
“(Prices of) Everything has gone up. Even online grocery stores which would give me a better discount no longer do so,” said Tripti Sinha, a middle-class woman from east Delhi.
Consumer goods major Dabur Ltd’s analysis showed sale volumes of most products — shampoo, toothpaste and hair oil — were either flattening or declining. The sale of soaps had fallen 5% in March from a month ago, Bizom said.
Domestic prices began rising with Russia’s invasion of Ukraine on February 24, lifting crude oil prices that very day beyond $100 a barrel for the first time since 2014.
Since India is a net importer of crude oil, fuel inflation pushes up prices of every other good. “A $10 increase in crude oil prices can push retail inflation by 50-60 bps (basis points) and wholesale inflation by 125-135 bps,” according to an Edelweiss Wealth Research note last month. One basis point is one-hundredth of a percentage point.
According to Bizom’s data, rural sales of lower-priced smaller packages went up by 2% in beverages, 4% in personalcare products and 10.5% in commodities between January and first week of March. The phenomenon is called downtrading — and essentially means consumers prefer smaller packs and lower-priced brands.
India’s biggest FMCG firms, including Hindustan Unilever Ltd, Marico Ltd, Dabur India Ltd, Emami Ltd and Britannia Industries Ltd, have seen margins squeezed, prompting them to raise prices by up to 30% in recent months, data from these firms show.
A key reason for higher inflation lies at the back-end of the production line: broken supply lines. The Covid pandemic dealt a huge blow to supply chains, only to be wracked more by the Ukraine conflict.
The Ukraine war has worsened global supply bottlenecks, throwing off-gear delivery timelines of critical raw material, intermediate goods and finished items.
Take for instance edible oil. Russia and Ukraine account for more than 80% of the nearly three million tonne of India’s annual sunflower oil imports. The war disrupted supplies suddenly.
The breakdown of sunflower oil imports led to higher consumption of palm oil, causing global palm oil prices to jump nearly 22% since the start of the Ukraine war. Supply disruptions – ships are taking longer routes since the war broke out — can raise risks to edible oil supplies further, said Sandeep Bajoria, president of the International Sunflower Oil Association.
Cooking-oil prices can pressure input costs of a variety of items where it is a raw material, from ice-creams and biscuits to soaps. According to a survey by Local Circles conducted between March 23 and April 7, nearly 24% of the respondents said they had downtraded or cut consumption of edible oils.
“Steel too is a tug of war between costs and prices. Prices of coking coal, iron ore and steel have surged sharply amid the ongoing war, as Russia and Ukraine are large exporters of these commodities. Domestic steel price hikes, so far, are insufficient to cover cost inflation,” said Sumangal Nevatia, an analyst with Kotak Securities. Most factories depend on coking coal for production.
“People often don’t realise that a huge chunk of our inflation is imported inflation,” said Vidit Jain, an analyst with Comtrade, a commodities trading firm.
In its March quarter update, consumer goods firm Marico Ltd, which sells Parachute, a popular hair-oil brand, said “companies effected price hikes across packaged consumer goods categories to cope with the cost-push”. Persistent inflation “continued to hurt consumer wallets across rural and urban segments”, it said, citing data from market researcher Nielsen.