Inflation set to rise as steel makers hike rates

With steel makers going in for another round of price increase in the new year the stage appears to be set for the overall headline inflation to move up.

Steel Authority of India Ltd (SAIL) has gone in for an average three per cent increase in the price of all its products, which include long products used in the construction sector and flat products that are used for making automobiles and durable consumer goods such as refrigerators, washing machines and furniture.

Steel yourself   SAIL, on Monday, hiked prices across product categories by around Rs1,000 per tonne to offset an increase in input costs The hike was on account of an increase in input costs. The revised steel prices were effective from Jan 1 On Sunday, NMDC had raised iron ore prices by 5.22 per cent for the Jan-Mar quarter and coal prices are also on the rise Private sector firms, such as Tata Steel and JSW, have also hiked prices The rise is expected to have a cascading effect on the prices of automobiles, consumer durables & push up the cost of constructing houses & infra projects, such as bridges and ports

A SAIL official told Mail Today that the average increase in prices of its products will work out to around Rs1,000 per tonne. Similarly, private sector companies, such as Tata Steel and JSW, have also hiked prices.

With the demand for steel firming up, steel companies are keen to protect their bottomlines as the prices of raw materials, such as coking coal and iron ore, have also shot up.

The increase in steel prices is expected to have a cascading effect on the price of automobiles and consumer durables and also push up the cost of constructing houses and infrastructure projects, such as bridges and ports.

Auto manufacturers had been under pressure to increase prices as the cost of inputs, such as steel, tyres and plastic materials had gone up during 2010. Due to the fierce competition in the market these companies had been holding on to the price line and had decided to increase the prices in January this year.

Tata Motors has been the first off the blocks and announced a price increase of Rs2,000 to Rs30,000 in the prices of passenger vehicles. The leading auto maker has also increased the prices of commercial vehicles by up to Rs30,000.

Other major car makers, such as Maruti Suzuki, Hyundai and GM India had also announced plans to increase prices this month. However, with steel prices going up further they are bound to come under pressure again. With rubber prices soaring to an all-time high, tyre prices have also shot up which again impacts the prices of vehicles as well as the transport cost of truckers.

The increase in steel prices also comes at a time when international oil prices have soared and the public sector oil companies have been forced to hike petrol prices by as much as Rs6 per litre since June last year. Rise in prices of diesel and LPG has been kept on hold due to political compulsions of the government but the subsidy bill will turn out to be much higher.

Prices of polyester yarn and cotton have also been soaring and this has brought down the margins of textile manufacturers who are also under pressure to increase prices.

According to senior economists high commodity prices have started translating into higher prices of manufactured goods, which is bound to push up the country's headline inflation.

While food inflation is back in double digits, the country's overall headline inflation had come down to 7.48 per cent in November from 8.38 per cent in September and 8.8 per cent in August, 2010.

The government was expecting headline inflation to come down to 5.5 per cent in March this year. However, chief economic adviser Kaushik Basu now expects this number to be between six to seven per cent which he said was a "manageable level".

Courtesy: Mail Today