India’s household expenses may shoot up due to Russia-Ukraine war; companies watching input costs

Russia-Ukraine war will impact household expenses ‘hugely’ in India, with many consumer product companies not ruling out the possibility of further price hikes, as costlier crude oil has a cascading effect on consumer goods. Several companies said that they will wait and observe the situation created by this global crisis for any escalation over the short term. Panasonic said it is well prepared. “There are no immediate plans to announce any further hike in prices, but we are watching input costs closely for any escalation over the short-term,” Manish Sharma, CEO, Panasonic India & SA, told FinancialExpress.com.

What will get costlier as Russian supplies stop?

“Mineral fuels & oils, natural or cultured pearls and precious stones, fertilizers, machinery, nuclear reactors and its parts are the main categories India is importing from Russia. Its share of total imports from Russia is almost 50 per cent. These categories may see a price hike of 4-6 per cent as India will have to import from other countries at a higher price. Similarly, India imports agriculture products, vegetable fats and oils, metallurgical products, plastics and polymers from Ukraine. However, not much impact on price will be seen in these categories,” Azaz Motiwala, Founder at IKON Marketing Consultants, told FinancialExpress.com.

High crude oil prices to make food, other stuff more expensive

Russia-Ukraine war has already stoked the price of crude which is now above $100 a barrel; this will directly or indirectly impact almost all consumer facing products. India imports nearly 80 per cent of its oil needs and this price hike is directing the country towards a risk of inflation. According to the Reserve Bank of India’s analysis, every $10 rise in crude prices adds about 0.5 per cent to inflation. “As oil prices rise, we may see an increase in inflation in India and this can make staple items such as vegetables, fruits, pulses, oil etc a bit expensive,” Azaz Motiwala added.

Krishnarao Buddha, Senior Category Head, Parle Products, said, “There is no stopping the rise in input costs. Going forward, with how the price of crude oil is going due Russia’s attack on Ukraine, and with markets crashing, etc., it will definitely have an impact on food because at the end, its all about prices of oil and gas. This increase in price will ultimately have a huge bearing on input prices and accordingly, all manufacturers and plants will be subject to further price increases and that might have some bearing on the overall demand as well.”

Saugata Gupta, MD and CEO, Marico Limited, said, “The evolving geo-political scenario can flare up the prices of crude oil and other commodities further which will have a cascading impact on raw materials and packing materials. Organisations will have to gear up and take measures to absorb some of the cost through aggressive optimisation initiatives and perhaps pass on some of the pressure to consumers in a calibrated manner.”

Dabur too is looking at a ‘calibrated price increase’ in case of a rise in input cost. “We are closely watching the situation now, and will have to take another round of calibrated price increases in case the inflationary pressures continue unabated,” Mohit Malhotra, CEO, Dabur India Ltd, said. There is already continued inflation in hydrocarbon derivatives, paper-based packing material, raw honey, edible oils and some key spices that we use, he added.

‘Imported inflation’: How much will raw material costs rise?

“Owing to the current global scenario of the ongoing tensions between countries, this phenomenon is expected to continue in the coming quarters as well. We further expect the input price to increase by 3-5 per cent on an average across categories. Moreover, if the current global tension continues, there is a possibility that the raw material and other input costs might further increase, translating into higher prices of consumer goods across industries,” said Rakesh Kaul, CEO and Whole Time Director, Somany Home Innovation Limited.

“The Russia-Ukraine war has its first casualty impact on the price of crude. Crude is already at $100. As this price increase gallops with every incursion, diesel and petrol prices shoot up all over. The daily adjustment model of pricing fuel will make sure that consumers prices for fuel shoot up madly. Expect anything between 12-20 per cent, in a worst case scenario. This means that every consumer pays more to travel, for every cake of soap, toothpaste and vegetable and fruit, etc. Expect consumer prices of goods and services to rise and expect the bite to be deep. This is really “imported inflation due to war”, business and brand-strategy expert Harish Bijoor told FinancialExpress.com.

However, Ashish Khandelwal, MD, BL Agro, said that the crisis will not have a major impact on India and inflation rate in the country. “It will not have a significant impact on India. There might be a slight increase in the price of sunflower oil since we import the sunflower from Ukraine but since there is no major consumption of it in India, it won’t matter much. In terms of crude oil as well, there might be a further price rise of lets say, 5 per cent.”

Oil, food inflation to hit India hardest in Asia

ICICI Securities recently said that the higher crude oil prices resulting from Russia-Ukraine conflict will keep CPI inflation higher for longer, obliging the RBI to raise rates more than the two hikes that were expected in Aug-Dec’22 since transport forms about a fifth of CPI basket for an average consumer. A report by Nomura Holdings said that the geopolitical tensions are likely to further aggravate inflationary pressures with sustained rise in oil and food prices to have an adverse impact on Asia’s economies. It also said that in Asia, India is likely to be among the worst losers as a result of this conflict.

Russia accounts for 11 per cent of global crude-oil exports. If sanctions take about 60 per cent of this off global markets (with China, Belarus, and a few other customers possibly defying the sanctions), world crude-oil supply would decline by 3mmbd, and the Brent crude price would likely shoot above $110/bbl, ICICI Securities said.

Prolonged period of instability

Meanwhile, global forecasting and quantitative analysis company Oxford Economics moved its global baseline to full-scale invasion scenario, which assumes a prolonged period of instability. Priyanka Kishore, Head of India and South East Asia, Macro and Investor Services at Oxford Economics, maintained that this should shave off 0.2 ppt from global GDP growth in 2022 and 0.1 ppt in 2023. This means higher European gas, oil and food prices, and more financial market disruption. Furthermore, it said that Asia will not remain unscathed and despite limited trade and investment linkages with Russia, the region will feel the impact via higher energy prices and some other commodities.