Moneycontrol Pro Panorama | The looming spectre of price controls

Representative image. REUTERS/Shailesh Andrade/File Photo - D1BETTMEIYAA

Dear Reader,

It’s a sign of the strange times we live in when you read about the government asking packaged edible oil brands to lower prices. The government has several official levers such as export levies and stock limits to tamp down prices. But it’s taking things to another level by calling packaged edible oil companies, telling them global prices have fallen by 10 percent, so they should cut prices too. A compromise appears to have been worked out with edible companies agreeing to lower their MRP by Rs 10 a litre next week for imported oils such as palm oil, sunflower and soyabean oil.

In a free market where multiple brands exist, and loose oil is freely available, companies should be able to make their own decisions on prices. Uncompetitive brands will anyway lose share. Companies also make pricing decisions based on purchasing decisions. If purchase orders were already placed for edible oils at a higher price, they may incur a loss at a lowered MRP. Or, if they had absorbed some of the inflation in input costs, they could have gained now that costs have fallen.

Increasingly, the government seems to be adopting a proactive -- some may call it aggressive -- stance to tackle an inflationary and volatile environment, by asking companies to lower prices, or sell more in the domestic market or even take a slice away from their profits as it did recently for oil and gas companies. Will there be more surprises ahead for businesses is a question investors may be wondering.

Investors in FMCG companies are getting pre-results updates. The effect of economic conditions on their business is clearly visible, but it’s not uniform. In today’s edition, we have analysed the pre-result updates of Godrej Consumer Products and Dabur India, following Marico’s that was published yesterday. Godrej Consumer’s volumes are expected to decline in mid-single digits during the June 2022 quarter. Marico too saw volumes decline. However, Godrej Consumer’s sales growth is expected to grow, thanks to price increases. But that was not enough to protect margins. Read here for more.

​Dabur, however, had a slightly different report as its India business growth of high single-digits was backed by mid-single digits volume growth. However, that did not spare its margins from suffering the after-effects of inflation. Read more about its performance here.

Controlling runaway prices also remains the prime concern of the US Fed, as evident in the minutes of the latest meeting that were released on Wednesday. The broader point from the minutes is that inflation remains a concern and the Fed will do what it takes to rein it in. But the minutes also mentioned the possibility of the next rate hike being at 50 or 75 basis points, rather than a 75 basis point hike that was being priced in.

But don’t get your hopes up too soon. Will the Fed pay heed to fears of a recession setting in or go ahead with a singular focus of beating down inflation is the main question. While the sharp fall in commodity prices may appear as good news, sharp falls are sometimes followed by a bounce. How the data plays out between now and the end of July, and whether a cooling in commodity prices or signs of a slowdown are seen as durable, will go a long way in determining whether the Fed shifts to a lower gear in its next meeting.

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