Gulf war fuels raw material inflation, FMCG firms shift to daily pricing strategy

Leading consumer goods companies said the Gulf war has triggered unprecedented inflation across raw material inputs, forcing firms to monitor prices almost daily, cut costs wherever possible to protect margins, and put medium- to long-term business strategies on hold amid volatility on multiple fronts.

Companies have also expressed concern that a renewed spike in the cost of living could derail the consumption recovery that had gathered pace after India reduced goods and services tax rates across multiple products last September.

Havells India chief executive officer Anil Rai Gupta said the company is currently taking a month-to-month view of business conditions. “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,” he told analysts on Wednesday.


Hair oil manufacturer Bajaj Consumer Care managing director Naveen Pandey said during the company’s earnings call last week that it is monitoring input costs almost daily and taking decisions accordingly. He said the company’s entire cost base is facing inflation ranging from 20% to 60%.

Pandey said the war has created “extreme volatility” in the prices of light liquid paraffin and packaging materials, while also delaying the expected cooling in mustard and copra prices, which have remained at pre-war levels instead of declining further as was expected. The company is undertaking cost optimisation measures across operations

The Gulf war has pushed up prices of commodities and crude-linked derivatives, raised freight costs, and increased the prices of imported inputs due to the sharp depreciation of the rupee. Industry executives said the ceasefire has not yet eased prices, while volatility continues whether the war may restart again.

In the last one month, companies have already raised prices across several categories, including air-conditioners, refrigerators, soaps, detergents, hair oil, apparel, decorative paints and footwear. In some cases, pack sizes have also been reduced to offset higher input costs. More pricing action is expected by the end of this month.

India’s largest biscuit company, Parle Products vice president Mayank Shah said the input cost pressure is huge and the uncertainty is “killing”.

Tata-owned apparel retailer Trent Ltd, which runs stores like Westside and Zudio, said in an investor presentation released on Wednesday that while consumer sentiment was relatively stable at the beginning of January-March quarter, the impact of the unfolding geopolitical situation is still playing out.

“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,” Trent said in the presentation.

India’s largest edible oil company, AWL Agri Business executive deputy chairman Angshu Mallick said the company has passed on the increase in freight costs to consumers whereby edible oil prices have gone up by Rs 7-10 per kg. “Being a staples company, we hike or reduce prices immediately. As we are in basic necessities, the volume impact is usually lower,” he said.