Prices of staples and FMCG goods are going up due to supply bottlenecks and a jump in raw material costs, and the consumer is finding it a double whammy given that real income is coming down.
The extent of retail price increase in the post-lockdown period was much higher than the usual summer uptick in food prices, according to RBI's annual report.
“Pressures from food items like pulses and edible oils are likely to persist in view of supply-demand imbalances, while cereals' prices may continue to soften with the bumper foodgrains production in 2020-21," the RBI said.
Edible oil prices have hit record highs with soyabean oil prices climbing to nearly Rs 150 a kg and sunflower oil to Rs 170.
The retail price of gram increased to Rs 80 per kg on May 14 from Rs 60 per kg a year ago, tur rose to Rs 110 per kg from Rs 90 per kg, while urad to Rs 105 per kg from Rs 100 per kg and masoor dal to Rs 80 per kg from Rs 72.50 per kg.
Prices of packaged consumer goods such as soaps, detergents, soaps, tea, oil have gone up as the prices of raw materials have gone up and logistic costs have risen.
However, the situation is bleak at present. Real income has declined as GDP has fallen and inflationary pressure continues, said Arun Singh, Global Chief Economist at Dun and Bradstreet. This has impacted consumer demand negatively.
“The rising fuel cost will have a ripple effect on logistics costs. When transportation costs go up, the selling price is bound to go and will be passed on to the consumer,” he said.
Edible oil prices have risen over 62 percent in a year. If one were to look at edible oil prices on a year-to-year basis, they are witnessing new highs. For instance, in 2016-17, the price of soyabean oil was around Rs 750-levels and crude palm oil around Rs 650-levels. Now, the price of soyabean oil is trading around Rs 1,400-Rs 1,500 in 2021, while crude palm oil prices have moved to Rs 1,200 to 1,260 levels.
The price of crude oil affects the packaging costs, which now varies around 7.5 percent to 8 percent, for FMCG products, said Abhijit Kundu, vice president, Antique Broking. And the ricocheting effect will be felt on the prices of finished goods. Some key raw materials like palm oil, sugar and copra should see some amount of inflation, he said.
However, there can be a respite soon. The prices are expected to cool down based on three factors: a good monsoon (as per IMD reports, normal monsoon is expected this year), lockdown restrictions easing in the country and vaccinations available to all.
Sunand Subramaniam, Senior Research Associate, Choice Broking, said the vegetable oil prices have risen amid rising demand on account of the rising population, usage and consumption.
Edible oil prices are likely to come down in the next two months if the monsoon is good like last year, but cautioned that prices may bounce back in the festive season (August onwards) and reach new highs by end of the year.
“Once the lockdowns ease after vaccination picks up pace, domestic edible oil consumption is expected to show a decline along with high demand in the food services, manufacturing and the FMCG sector,” Subramaniam said.
