Moneycontrol Pro Panorama | Sticky prices put consumers on a wild ride

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Fuel prices have finally been hiked. Petrol and diesel prices were raised by 80 paise a litre each. Retail consumers will still pay lower than bulk users for whom diesel prices are dearer by a steep Rs 25 per litre. Still, the government can insulate retail users only to a certain extent.

Bulk users such as transport corporations, large industrial and commercial establishments will be forced to pass on the fuel price rise to consumers. Cooking gas and edible oil prices were hiked at a faster pace. This is not only the pain point consumers are facing.

Rates of commodities that influence big ticket purchases such as housing are already on the rise. Cement and steel prices are at elevated levels.

Companies, including those in the service sector, are seeing cost escalations. Manpower is in short supply. Manufacturers are paying huge premiums to secure raw materials and intermediate goods such as coal and crude oil derivatives.

Some cannot afford to pay high prices. Power plants, which are dependent on imported coal and cannot fully pass on the input cost increases to customers, may be forced to cut production. “These plants may remain shut incurring fixed cost under recovery,” say analysts at JM Financial Research.

And the companies that are able to keep their factories humming are facing the prospect of compressed or delayed recovery in profit margins. Examples include cement, automobiles, and to some extent, the food FMCG companies.

The net impact of all this can be a slower than expected rise in economic output, corporate earnings and disposable incomes. Fitch Ratings lowered its gross domestic product estimates (GDP) for the fiscal year beginning April 2022 by 1.8 percentage points citing the steep rise in energy prices.

The ratings agency’s prognosis of the global inflationary conditions is more alarming. “Global inflation is back with a vengeance after an absence of at least two decades. This is starting to feel like an inflation regime change moment,” warns Brian Coulton, Chief Economist, Fitch Ratings.

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R Sree Ram
Moneycontrol Pro