Get Ready To Hold Your Fist Even Tighter. Prices Across FMCG Set To Jump 5-20%, But For The Government, It’s A Win As GST Collections Will Fill Their Coffers!

A Storm of Price Hikes Across FMCG

In a country where roti, kapda, aur makaan (food, clothes, and home) remain the backbone of daily aspirations, the year has already felt like an uphill battle for the middle class. Inflation has accelerated, and the uncertainty is biting hard. For those who thought the year couldn’t get tougher, brace yourselves for inflationary pressures are set to upend household budgets further, potentially worsening already stressed urban demand.

Starting this month, major fast-moving consumer goods (FMCG) companies are rolling out significant price hikes to counter rising commodity costs and increased customs duties. Industry giants like Hindustan Unilever, Godrej Consumer, Dabur, Tata Consumer, Parle Products, Wipro Consumer, Marico, Nestle, and Adani Wilmar have confirmed that prices across essential categories will see a jump of 5-20%.

This price hike marks the largest increase in 12 months. Everyday staples like tea, edible oil, soap, and skin cream are all set to become more expensive. The cost burden is being driven by a 22% hike in import duty on edible oil in September and an up to 40% surge in commodity prices in 2024 alone. Last year, the prices of sugar, wheat flour, and coffee had already surged, adding to the strain on consumers.

The Current Scenario

According to Bizom, a retail intelligence platform, India’s FMCG market grew 4.3% year-on-year in October, largely driven by rural demand. However, November sales told a different story, declining by 4.8% year-on-year, with both urban and rural sales witnessing a drop.

Leading players have already started implementing price increases:

• Hindustan Unilever (HUL) has raised prices on soaps and tea.
• Dabur has adjusted prices for healthcare and oral care products.
• Nestle has made changes to its Nescafe coffee brand pricing.

Dabur’s Chief Financial Officer Ankush Jain commented, “We have raised prices in select categories to mitigate the impact of higher commodity prices.”

Meanwhile, Neeraj Khatri, CEO of Wipro Consumer Care, stated, “While these hikes might impact volumes to some extent, the effect is typically less pronounced in consumer staples and essential categories. Pricing adjustments remain essential to ensure value growth and long-term sustainability.”

The Impact on Demand

While FMCG companies are optimistic that the price increases won’t significantly hurt urban demand in the next two quarters, analysts remain cautious. The prevailing scenario of higher prices and tepid demand casts a shadow on near-term growth prospects.

Raw material inflation continues to be a major concern. A weak demand environment coupled with the rise in inflation is delaying the sector’s recovery. Additionally, the weaker-than-expected winter season is impacting sales of seasonal portfolios. Distributors have noted that this round of price hikes is being implemented uniformly across all pack sizes, unlike previous instances where larger packs bore the brunt.

Why Is the Government Struggling to Tame Inflation?

Inflation in India has been a persistent issue, with little indication that relief is on the horizon. Both core and food price indices remain stubbornly tied, and despite food and vegetable prices reaching cyclical highs, supply responses continue to lag behind the demand boost driven by income-transfer schemes. This mismatch prolongs inflationary pressures and adds to the economic strain on households.

Inflation Peaks

India’s retail inflation surged to a 14-month high in October, driven by a sharp increase in vegetable prices, effectively quashing hopes of an interest rate cut by the central bank. The annual retail inflation of 6.21% in October breached the Reserve Bank of India’s (RBI) tolerance band for the first time in over a year.

Earlier in June, food inflation spiked significantly, raising the overall Consumer Price Index (CPI) inflation to 5.1%, up from 4.8% in May. This increase was primarily fueled by soaring prices of vegetables, cereals, milk, and fruits. Despite a favorable base effect from the previous year, food inflation jumped to 9.4%, with vegetable prices staying in double digits for eight consecutive months.

The central bank has acknowledged the persistent challenge of food inflation, emphasizing that pressures in this sector cannot be ignored. While inflation in other sectors remains under control, food inflation has been remarkably resilient due to unpredictable weather patterns and inefficiencies in the agricultural sector.

GST Collections and Inflation

One notable consequence of rising inflation is its impact on Goods and Services Tax (GST) collections. Monthly GST revenues surged past ₹2 lakh crore in April, driven by the inflated prices of goods and services. While the GST rate remains unchanged, the government’s revenue increases during periods of high inflation because the tax is calculated as a percentage of the final price.

While the consumer’s wallet feels the pinch, the government stands to benefit as GST collections swell with rising product prices. For the middle class, however, this feels like salt on an open wound. With urban demand already under pressure and rural markets showing inconsistent performance, the hike might deepen the challenges faced by households across the board.

The Tomato Stories….

Tomato prices have become emblematic of India’s inflation woes. Each year, prices surge dramatically, and the government attributes this to seasonal volatility. However, this explanation often obscures deeper, systemic issues –

Masking Structural Problems: Seasonal price spikes are presented as isolated phenomena, diverting attention from the underlying inefficiencies in supply chains and agricultural practices.

Contradictions in Policy: The government’s ambitious proposals, such as “One Nation, One Market,” often clash with practical measures that restrict farmers’ access to lucrative export markets to control domestic prices quickly.

Resonance with the Middle Class: Framing the issue as a “helpless” situation aligns with the financial constraints faced by the middle class, creating a narrative of shared struggle.

Despite stable and abundant food production in recent years, food inflation persists. The situation’s severity was highlighted last August when tomato prices soared to ₹350 per kilo, making it nearly impossible for a large section of the population—60% of whom live on less than ₹250 a day—to afford basic vegetables.

The Broader Impact of Food Inflation

Food inflation’s effects are amplified by stagnant wages and widespread unemployment. Real wages, adjusted for inflation, tell a grim story –

• Between 2004 and 2014, real wages grew annually by 5-6%, providing some cushion against rising prices.

• From 2014 to 2024, real wages for salaried workers, the self-employed, and agricultural laborers have stagnated or declined. For agricultural laborers, wages have decreased by 1.3% annually over the last decade.

This stagnation means that people’s incomes have not kept pace with inflation, deepening the economic distress. For context, food inflation in November 2013 was 14.73%. In December 2019, after a full term of the Modi government, it remained alarmingly high at 14.12%.

The Last Bit

The government faces a daunting challenge in balancing inflation control with economic growth. Structural reforms in agriculture, better supply chain management, and policies to boost wage growth are critical to addressing the root causes of inflation. Until then, the burden of rising prices will continue to weigh heavily on the average Indian household, leaving many to question why relief remains elusive.

The coming months will test the resilience of both consumers and FMCG companies. For the former, managing household budgets will become an even tighter balancing act. For the latter, ensuring volume growth amid inflationary pressures will require strategic pricing.

In the end, the middle class is left to weather yet another storm, holding on tighter to their dwindling purchasing power, while the government’s coffers fill with the fruits of higher GST revenues. Whether this trade-off can be sustained without breaking the backbone of urban demand remains the million-dollar question.