Inflation concerns among Indian firms may test RBI’s resolve to keep borrowing costs low

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Mumbai: A slew of Indian companies have become increasingly vocal about their inflation concerns, setting the stage to raise prices that test the central bank’s resolve to keep borrowing costs low to support the economy. Can do.

Hindustan Unilever Ltd, the Indian arm of Unilever Plc, companies of Nestle India Ltd have pointed to profit-squeezing from higher input costs and supply chain tensions, while Dabur India Ltd, a maker of packaged honey and hair, is the choice. Oil, and Britannia Industries Ltd. have already passed some of the increased costs to consumers.

India’s headline inflation could see a four-month slowing trend in October, according to average estimates in a Bloomberg survey of economists, with data expected to rise to 4.4% in print later on Friday. Consumer prices are seeing further upside as the higher base than a year ago has faded.

“There is no option to hike prices in such an environment,” Britannia Managing Director Varun Berry told analysts in a post-earnings call this month. “That’s why we’ve taken price hike action.”

While many central banks have responded to price pressure by raising interest rates, the Reserve Bank of India has stuck with its inflation-provisional narrative as it is reducing headline numbers on high food production after a bountiful monsoon.

The expected food price-based moderation in India’s inflation was cited by Governor Shaktikanta Das as reason enough to continue with the easing monetary policy, which he called a “delicately prepared” economic recovery. The RBI rate panel is scheduled to meet early next month to review policy settings.

Although the central bank sees inflation for the year ending March 2022 to end at 5.3%, well within its 2%-6% target range, economists see the headline numbers masking persistent price pressures. .

“The year-on-year estimates of retail inflation mask the underlying real inflation prevailing in the economy due to the statistical base effect,” said Jai Shankar, chief economist at Incred Capital in Mumbai. “Corporate results continue to underscore the impact on margins due to raw material inflation, and are likely to persist for a few more quarters due to the slowdown in the economy.”

What Bloomberg Economics Says…

“Given the prospect of inflation re-warming and the pace of recovery, we see a risk that the RBI raises rates slightly sooner than our current expectations for a reverse repo rate hike in April 2022, followed by February 2023. The policy repo rate rises. ,

– Abhishek Gupta, Senior Economist of India

Prime Minister Narendra Modi’s administration last week cut excise duties on diesel and gasoline, aimed at checking inflationary pressures and giving the central bank more room to keep borrowing costs low. According to economists including IDFC First Bank Ltd and Yes Bank Ltd, the move will help bring down consumer price inflation by 10 to 14 basis points.

Still, an increase in demand from Indians exiting the lockdown could give businesses pricing power that could sharply drive inflation.

“The steep increase in prices charged for the provision of services in India has not had any detrimental effect on demand,” said Polyana de Lima, economics associate director at IHS Markit. “That said, service providers were concerned that persistent inflationary pressures could stifle growth in the coming year.”

Those are among the risks, which Shankar of Increddt said could turn the RBI sooner than the market price.

“Despite the near-term inflationary prints, markets are increasingly focused on the rise in global commodity prices and the impact of a possible Fed QE on India’s monetary policy,” said Anubhuti Sahai, an economist at Standard Chartered plc. ,bloomberg

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