Although the inflationary pressure is prevailing across sectors, the Reserve Bank of India (RBI) has said it is likely to continue due to high global food prices amid the ongoing geopolitical situation. Companies are also facing price hike pressures amid high input costs. The central bank, however, kept the inflation forecast for the current financial year at 5.7 per cent.
In an off-cycle monetary policy review, the MPC has unanimously hiked the key repo rate, at which it lends short-term money to banks, by 0.40 per cent to 4.40 per cent with immediate effect. The retail inflation has remained above the RBI’s upper tolerance level of 6 per cent for the last three months and the ongoing war between Russia-Ukraine has pushed the inflation in almost commodities across the globe.
Now, will the price hikes by companies across sectors continue? According to reports, companies across sectors such as Unilever Plc and Suzuki Motor Corp to homegrown JSW Steel are raising prices in response to the global supply squeeze made worse by the surge in energy costs following Russia’s invasion of Ukraine.
FMCG major Hindustan Unilever Ltd (HUL) has raised prices of its goods by 2-15 per cent across segments. It had last increased the price of its products in April. The FMCG major had hiked prices, in the range of 3-20 per cent, across skin cleansing and detergents.
RBI Governor Shaktikanta Das while announcing the policy on Wednesday said, “Confronted by elevated inflationary pressures that have shifted the future trajectory of inflation upwards, we have announced our intention to engage in withdrawal of accommodation to ensure that inflation remains aligned to the target.” Consumer Price Index (CPI)-based retail inflation rose to nearly 7 per cent in March mainly due to the impact of adverse spillovers from unprecedented high global food prices, the RBI has said.
Das said high-frequency price indicators for April indicate the persistence of food price pressures. “Simultaneously, the direct impact of the increases in domestic pump prices of petroleum products beginning the second fortnight of March is feeding into core inflation prints and is expected to have intensified in April.”
He has said that while the inflation has remained above the targeted 6 per cent level since January, inflation in April is also likely to be high. The retail inflation print for March stood at 6.9 per cent.
Kotak Mahindra Bank MD and CEO Uday Kotak has said, “It was pretty clear that the wolf of inflation is getting more entrenched. And therefore, there was clearly a need to move. I read this (repo rate hike) as a very strong message by the RBI that they’re taking the point on inflation and inflationary expectations seriously and you cannot allow the wolf to get deep in it and then becomes that much trouble to get the wolf out.”
Amid the supply chain disruption mainly due to the Russia-Ukraine war, input costs for companies have been rising and the Indian manufacturers are running out of capacity to absorb them. In response to this, companies across sectors are raising prices.
Indonesia has also banned its palm oil exports, which has affected companies across sectors as palm oil is used to manufacture items such as shampoo, soap, etc. However, analysts and industry players feel the curb on the outbound shipments is likely to be short-lived and will be lifted soon.
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