But there is a looming worry. And that has been expressed by many company officials reporting their handsome profits of the quarter ending September. The telling remarks were by the Chairman and Managing Director of Hindustan Unilever, which is a leading manufacturer of all sorts of consumer goods from shampoo to detergents to ice cream, i.e. makers of soaps, oils, skin care and food products. He warned that the pace of input cost escalation is the steepest in more than a decade. This sentiment is echoed by many other companies too. The input cost escalation is best captured by the Wholesale Price Index (WPI) based inflation which has been running at double digits for several months. It includes energy and logistics costs (of oil, petrol, diesel, coal), of raw materials including metals and chemicals, and of costs imposed by supply chain disruptions which are being felt globally. The gap between consumer (CPI) and WPI based inflation is too wide, and is bound to narrow. Which means consumer price inflation will surely rise. Companies like Asian Paints have indicated that the third quarter may see steep increase in prices of their products. This is likely to be emulated by other companies in many sectors.The price of a matchbox was doubled, the first price hike of this humble product in the past seven years. Price revisions in shampoo bottles or noodles, toothpaste or edible oil, all of it is sure to lead to consumer inflation.Indeed, the RBI itself is unsure of reaching its own target of consumer inflation of 4 percent before 2023. For nearly two years India’s CPI inflation has been at or above the 6 percent mark, which is the top end of the band allowed by the RBI. America too is experiencing record consumer inflation of about 5.5 percent, and so is Europe. The cost of gas used for home-heating in the winter, and also oil has spiked up. The Food and Agricultural Organization says that the global food price index is the highest in the past seven years. The Bloomberg commodity price index which captures energy, metals, fibres and chemicals has also risen sharply. Ocean freight costs are still very high and will persist. All of these are called “input costs” but sooner or later will feed into consumer inflation.To add to input cost pressure, are high fiscal deficits which need higher taxes (such as on petrol and diesel in India) which can only aggravate inflation. A good agriculture harvest cannot offset these high costs. Inflation can suddenly spike up like the second wave of Covid. It does not rise steadily and predictably. And if we get into a wage cost spiral (the government has already revised the DA rates) then putting the inflation genie back into the bottle might not be easy. Inflation fears have already made stock markets somewhat nervous. Some downward correction has started.
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