Hot summers to burn consumer wallets

Mon, 21 Mar Pre-Open

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It is just mid March and most parts of India are already facing scorching heat. Just a few days back Mumbai recorded the hottest March day in 55 years. Cities in Northern India are seeing a much warmer March than what they have in the past.

So naturally, the demand for cooling products this year is expected to be higher. But here's the bad news, the cooling solutions are all set to cost more. Thanks to higher input prices, most manufacturers have decided to increase prices of things like air-conditioners and refrigerators. But that is not the end of the list, prices of things like ice-creams and juices are set to go up as well.

Prices of popular air-conditioner brands like LG and Samsung have been increased by nearly 10%. The same is true for refrigerators as well. Higher input and raw material costs especially for copper, steel and aluminium, have forced manufacturers to raise prices despite heavy competition. Even for ice-creams, prices have been increased by as much as 12%. This is the direct result of the higher milk prices seen in recent times.

The worst part is that the buck does not stop here. As commodity prices show no signs of cooling off, manufacturers may be forced to resort to price hikes every month. Earlier, they used to look at increasing prices only once in 6-8 months. This means that it is unlikely that these products would become cheaper anytime soon.

Another reason for higher prices has also been the inefficient supply chain in the country. Poor and inefficient infrastructure has led to much higher packaging and logistics costs for the manufacturers. And this has added to their woes by putting pressure on their margins. Unfortunately, these problems are more long term than the commodity prices as the constraints and bottlenecks would take much longer to get resolved.

However, the shining light in this picture of doom is that manufacturers are hesitant about raising prices too much and too soon. This is due to the elastic nature of demand for these products. Especially for the consumer durables. Higher prices lead to consumers rethinking their purchases and cutting back on demand. As a result, many manufacturers are trying to absorb a large portion of the higher costs. And they are trying to resort to several cost cutting measures at their end to maintain their margins.

Nevertheless, they would still need to increase prices. So looks like this time summers would not just be super hot but would also burn a hole in the consumers' pockets.