Cost of living in India: Cost of living is rising in India as businesses pass on rising prices

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Indian manufacturers lack the capacity to absorb rising input costs, with a growing number passing them on to consumers in an economy already struggling with Asia’s third-fastest inflation and an uneven recovery.

The businesses of the Indian units of Unilever Plc and Suzuki Motor Corp. to local company JSW Steel Ltd. are raising their prices in response to the global supply shortage compounded by soaring energy costs following Russia’s invasion of Ukraine. Rising retail fuel prices also threaten to hurt demand as the economy returned to its first full year of growth after the pandemic-induced contraction of 6.6% in the fiscal year ended March. 2021.

“Inflation remains unchanged and is a cause for concern for the second consecutive year,” said Ankush Jain, chief financial officer of Dabur India Ltd., one of the country’s largest consumer goods companies. As margin pressure looms, Dabur plans to opt for calibrated price increases, in addition to deploying cost optimization measures to ease pricing pressures, he said.

Companies that pass on costs will add to inflationary pressures, but the RBI, which targets consumer prices, has argued that the current surge is supply-driven and best managed by the government. Policymakers, who will meet this week to decide interest rates, have signaled that they may revise their inflation forecast to 4.5% for fiscal 2023, but do nothing else to tighten restraints. settings for fear of harming growth momentum.

Bloomberg

“Although the central bank has not yet acknowledged this, there is telling evidence that inflation is likely to be much higher,” said Kunal Kundu, economist at Societe Generale GSC Pvt. This “may further jeopardize consumer confidence”.

Consumers are key to the country’s economic recovery, with private consumption accounting for around 60% of India’s gross domestic product. To stimulate demand, the central bank will likely keep borrowing costs lower for longer.

This will leave the RBI struggling to carry out its primary task of keeping inflation at the 4% midpoint of its target range of 2% to 6%, as it seeks government support in the form of tax measures.

Inflation could prove to be a bigger risk for India than growth in the coming quarters, if not addressed at this stage through various monetary policy tools, according to the economist of Deutsche Bank AG, Kaushik Das. He sees inflation remaining near the RBI’s upper tolerance limit if there are other shocks such as an erratic monsoon, which could disrupt agricultural production which accounts for one-fifth of the 20-year economy. 7 trillion dollars.

Spending by manufacturing companies on raw materials rose 37% in the three months to December from a year ago, accounting for more than 63% of their total spending, central bank analysis recently showed.

“We are seeing our profitability put to the test,” said Shashank Srivastava, senior executive director of marketing and sales at Maruti Suzuki India Ltd., the country’s largest automaker. “We are monitoring the situation and do not rule out further price increases.”

(With help from Ruchi Bhatia)

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