Consumer goods companies in India are facing a sharp rise in input costs due to the ongoing war in the Middle East. Surging raw material prices are forcing firms to track costs on a near-daily basis, review pricing frequently, and focus on short-term decisions instead of long-term planning.As firms are struggling with volatile input costs, company executives have told ET that the sudden spike in inflation has made it harder to manage business, while also raising concerns that higher prices could hurt consumer demand. This comes at a time when consumption had started improving after the government reduced goods and services tax rates on several products last September.Havells India chief executive officer Anil Rai Gupta was cited by the financial agency as saying that the company is taking a cautious approach and reviewing the situation month by month. “I have not seen this kind of price escalation in the recent past or in recent memory. Usually, inflation happens, but it is neither so steep nor spread across all product categories… consumer offtake can get affected if the price hike is too sharp.” Bajaj Consumer Care managing director Naveen Pandey said the company is closely tracking input costs and taking decisions almost daily. Speaking during the company’s earnings call last week, he said costs across the business have gone up between 20% and 60%. He added that the war has created “extreme volatility” in the prices of light liquid paraffin and packaging materials. At the same time, prices of mustard and copra have not fallen as expected and are still at pre-war levels. The company is working on cutting costs across its operations.Industry executives said the war has pushed up commodity prices and crude-linked products, increased freight costs, and made imports more expensive due to the fall in rupee. They added that even after a ceasefire, prices have not come down, and uncertainty remains over whether the conflict could start again.In the past month, companies have already raised prices in several categories, including air-conditioners, refrigerators, soaps, detergents, hair oil, apparel, decorative paints and footwear. Some companies have also reduced pack sizes to deal with higher costs. More price hikes are expected by the end of this month.Parle Products vice president Mayank Shah said the pressure on input costs is very high and the uncertainty is “killing”.Retailers are also seeing more careful spending. Trent Ltd, which runs Westside and Zudio stores, said in an investor presentation that while demand was steady at the start of the January–March quarter, the current situation is affecting consumer behaviour.“Consumers are spending with caution, resulting in moderation of discretionary spending on the back of continuing macro uncertainties and potential increase in cost of living. Structurally the demand levels and the underlying market opportunities remain strong. However, the duration and intensity of disruptions in the Middle East along with its second order effect on supply chain, commodity prices and inflation in general has potential implications for near term demand,” the company said.AWL Agri Business executive deputy chairman Angshu Mallick said the company has already increased edible oil prices by Rs 7–10 per kg to pass on higher freight costs. “Being a staples company, we hike or reduce prices immediately. As we are in basic necessities, the volume impact is usually lower,” he said.Meanwhile, the Middle East conflict is inching closer towards the two month mark. The conflict began back on February 28, when the US and Israel launched joint strikes on Iran. In retaliation, Tehran choked the crucial Strait of Hormuz, a pipeline that carries 20% of global energy supplies, straining flow across the globe.
