Why are households feeling the pinch of prices?

Indian households have begun to feel the pinch of higher prices as the West Asia conflict continues while monsoon rains remain below average. Brent crude oil prices have crossed $90 per barrel once again and there is expectation that it would keep domestic fuel prices under pressure as well.

In fact, over the last few months, the cost of the war in West Asia has begun trickling into household budgets. Not just cooking gas, prices of a bevy of household items, from fuel and staples like milk, dairy products, and biscuits to detergents and consumer goods like air conditioners have risen. Milk prices have increased by Rs 2 per litre. HUL has increased detergent prices by 5–11%. Britannia has flagged imminent price hikes to offset a 20% spike in fuel and packaging costs, while Dabur has raised prices within its oral care and haircare portfolios. These are just a few examples.

Consumers, across income levels, seem to be feeling the pinch. This may continue at least for the next few months as a combination of the West Asia crisis and below average rains along with job cuts and uncertainty about salary hikes are making them wary of too much spending. This holds for both urban and rural households.

Retail inflation as measured by the Consumer Price Index breached the RBI’s 4% target in June and rose to 4.38% with inflation in the food and beverage basket rising to 5.05%. Wholesale price index-based inflation is inching towards double digits and rose to 9.87% in June.

Most analysts expect inflation to average around 5%-5.2% this fiscal year, in line with the Reserve Bank of India’s projection of 5.1%. Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, says that they estimate average inflation at 5%, with some easing of concerns from falling crude oil prices and steady Indian rupee. She warns that the risk from deficient monsoons will need to be watched. “While the adverse impact El Nino in the past is not very conclusive, any sustained surge in food inflation could flair inflationary expectations. Overall, rural demand may take a hit if food shocks materialise,” she says.