Prices of all metals – from steel to copper, aluminium, zinc and lead – have shot up by about 5-11 per cent in the past month. Commodity inflation is raising its head, forcing companies to consider price hikes.
From next month, household appliances like washing machines, refrigerators, television sets and air conditioners will get expensive by at least 3-5 per cent.
The reason: Commodity inflation is raising its head, forcing companies to consider price hikes.
Consider this: The prices of all metals – from steel to copper, aluminium, zinc and lead – have shot up by about 5-11 per cent in the past month.
Crude oil price has increased by about 16.5 per cent in a month and soy oil and palm oil are up by about 9-13 per cent in the same period.
So is the case with cement, which according to a recent CLSA report has firmed up by about Rs 5-15 per bag across regions in the past month.
This has a straight impact on the housing industry, which is having to contend with higher construction costs, as the economy unlocks and real estate activity gains pace.
As Arshdeep Sethi, managing director, executive board, RMZ Corp, says, "Inflation hits the real estate sector at two levels.
"One, it drives up rentals. And it aggravates the ownership and maintenance cost of properties.
"There is a downward pressure on revenues, coupled with the pandemic-proof trends rung in by the ‘new normal’ due to inflation.
"All of this does not augur well for cash-strapped incumbents."
Consultants like Anarock chairman Anuj Puri and JLL India chief executive Ramesh Nair are even more specific: Property prices will stagnate as developers remain nervous about hiking prices in a weak market.
"Given that sales have remained tepid in the past few years and the pandemic has further aggravated the situation, developers have had to offer various deals and discounts to attract home buyers.
"They are willing to settle with fairly low profit margins, despite inflationary pressures, in order to get rid of their unsold inventory. Thus, property prices will remain as it is," Puri says.
Nair says that developers are currently focusing on recovering volumes lost amid the pandemic.
"Prices of key construction raw materials, including long steel and cement, have increased significantly in the past few months.
"Also, adequate and timely availability of labour has been a challenge for the real estate sector.
"While developers continue to face headwinds owing to a weak economic environment, property values have largely remained range-bound," he says.
Auto and durables makers clearly do not feel that way.
Kamal Nandi, business head and executive vice-president, Godrej Appliances, says that price hikes are imminent.
"Manufacturers had withheld price hikes despite hardening commodity prices during the festive season.
"But price hikes from December are likely as commodity prices continue to firm up.
"Plus, there are challenges on the import front leading to a shortage in supplies. That will affect the price of products," he says.
Shortage of supplies from China due to import barriers has been a worrying factor throughout the festive season, with retailers and manufacturers grappling with a shortfall across categories like laptops, TVs, washing machines, microwaves and kitchen appliances as demand remains high.
Blue Star managing director B Thiagarajan said that for 1.5-tonne room air conditioners, a popular segment with consumers, input prices have gone up by around two per cent.
He said that price hikes could not be undertaken during the festival season so that consumers are not driven away.
Going forward, however, he said there would be a price hike, which would hurt demand.
In a recent investor call, the management of TVS Motors said it had taken a price hike of one per cent in October to partially offset input cost pressures.
Ashok Leyland, on the other hand, has increased prices in the range of 1.5-2 per cent across products to tackle commodity inflation.
