Is your grocery bill ready for a hike?

The rising prices of raw materials like milk, sugar and cereals may prompt the FMCG companies, especially manufacturers of packaged foods like Nestle, Britannia and ITC, to raise prices over the next one or two quarters.

Rakesh Rai | Print Edition: February, 2010

There's a party on at Dalal Street, hosted by those who have invested in metal stocks. Of late, the share prices of National Aluminium, Hindalco Industries, Tata Steel and SAIL have surged. But, one man's meat can be another man's poison. The reason metal stocks are hot is that the prices of base metals like aluminium and steel are going up due to a revival in demand after the slowdown. The corollary is that the prices of goods that have metal as a key input are also likely to go up. Automobile giants such as General Motors, Toyota, Fiat and Maruti have already hiked prices and consumer durable companies are planning to follow suit in a couple of months, even as they ramp up production to cater to the loosening purse strings.

The prices of flat steel, which is used in the manufacturing of white goods and automobiles, have gone up by up to Rs 2,000 a tonne recently. LG Electronics, for instance, is looking at increasing the cost of flat panel televisions by 2 per cent since the module price, which is the non-plastic part of the panels, has increased proportionately. Says Amitabh Tiwari, head of sales, LG Electronics: "Our profit margin from flat panel televisions has been squeezed. We can only absorb a maximum of 1-1.5 per cent increase in input costs of flat panels." In light of the rising input costs, courtesy the increase in oil, plastic and copper prices, other companies are considering a price revision as well.

The price hike in automobiles, however, may be offset by the increasingly attractive auto finance rates. Several banks have slashed car loan rates and extended their festive schemes. For instance, ICICI Bank has reduced its auto loan rates by 25-50 basis points, bringing it to the range of 9.5-11.5 per cent. Axis Bank has also slashed rates to 10-12.5 per cent. So a minor increase in car prices may not register too much.

It's a pity that there is no such buffer for other price hikes in the offing. In fact, with rising food prices already stretching your disposable income, the possible increase in prices of FMCG products is sure to send your grocery budget into a tailspin. The rising prices of raw materials like milk, sugar and cereals may prompt the FMCG companies, especially manufacturers of packaged foods like Nestle, Britannia and ITC, to raise prices over the next one or two quarters. Similarly, given the 10 per cent hike in the price of non-edible oil (a key raw material for the oleochemical industry) in the past six months, your branded soaps and detergents are expected to cost more. Godrej had last increased soap prices by 5-6 per cent in early 2009. It's anyone's guess when and what the next round of price hike will be.

Alternatively, manufacturers may choose to reduce the grammage per pack instead of scaring the consumers with a direct price hike. However, is it really a blessing if you continue to shell out the same amount for the same brands, but with reduced quantities? No, because the impact will be the same as a price hike—the product still costs more per unit. So the next time you go shopping, remember to check the sizes of the products you pick. Or, perhaps, it is time to switch brand loyalty.

Regulator Watch
A look at the recent rulings which can affect you


  • In a bid to enhance transparency, RBI has directed banks to disclose the details of fees/remuneration received from their bancassurance business from the year ending 31 March 2010.
  • As part of the mobile banking guidelines, the central bank has hiked the daily cap for fund transfers and purchases from Rs 5,000 and Rs 10,000, respectively, to Rs 50,000 per customer.


  • Sebi has allowed investors to lend and borrow shares for 12 months instead of one month. Security lending helps short-sellers to meet their obligation to the clearing house.
  • Sebi has clarified that a copy of PAN is mandatory in the following cases: deletion of name of the deceased shareholder(s), where the shares are held in the name of two or more shareholders; transmission of shares to legal heir(s), where the deceased shareholder was the sole holder of shares; transposition of shares, if there is a change in the order of names in which physical shares are held jointly in the names of two or more shareholders.


  • The Telecom Regulatory Authority of India (Trai) has sought tariff details from all telcom companies to examine if operators are engaging in 'predatory pricing', or offering tariffs lower than the operating costs. After Tata Teleservices initiated the 'one paisa per second' tariff, and competitors followed suit, Bharti Airtel had sought Trai's intervention to ensure that no operator resorts to predatory pricing.

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