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- Raw Material Cost Pressure On Companies; Packaging Material Up 56% | India
New Delhi48 minutes ago
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Essential consumer products of daily use may become expensive in the coming days. According to the report of Systematics Research, due to rising prices of raw materials, companies are under constant inflationary pressure, due to which they can increase the prices of their products.
Prices have increased by 3 to 7% in the last two months
It has been said in the report that companies of different categories have increased the prices of their products by an average of 3% to 7% in the last one to two months. The main reason for this is that the cost of raw material basket of companies has increased by about 10% on an average.
Retail inflation increased to 3.48%
Retail inflation in April has increased to 3.48%. Earlier in March it was 3.40%. The biggest reason for increase in inflation is the increase in prices of food items. Food inflation increased to 4.20% in April. This figure was 3.87% in March.
Companies can reduce weight by increasing prices
To compensate for this increase in input cost, companies can adopt the method of ‘grammage cut’ i.e. reducing the weight of the packet along with increasing the prices.
Palm oil, crude and packaging costs increased
According to the report, costs have increased rapidly in certain categories:
- Packaging Material (HDPE): Prices of plastic (HDPE) used in shampoo bottles, detergent containers and flexible packaging have increased by 56%.
- Crude and Palm Oil: Brent crude oil prices have jumped by 32% amid ongoing tensions in West Asia. At the same time, the price of palm oil has also increased by 11%.
There will be an impact on the profits and margins of companies
The impact of this raw material inflation started becoming visible in the March quarter (Q4FY26) itself, when the gross margin of big companies declined. It has decreased by 0.50% on annual basis.
The biggest impact of this current inflation will be visible in the first half of FY 2027 (H1FY27). To compensate for the current cost increase, companies are increasing the prices of their goods so that they can avoid losses. But inflation is so high that there is a possibility that the total profit percentage (margin) of companies will remain low in the year 2026-27.
Earnings will increase but consumption is expected to decrease.
The report also warns that due to rising retail inflation, consumption volume (total consumption or sale of goods) may be adversely affected in the coming months.
Knowledge Part:
Grammage Cut or ‘Shrinkflation’: When companies reduce the weight of a product without changing its price, it is called ‘shrinkflation’ or grammage cut in the language of economics. Companies do this so that the customer does not directly feel the price increase and the profit margin of the company is also saved.
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