RBI's easy policy under pressure as companies worry about rising inflation

 Companies have turned increasingly vocal about their inflation concerns, setting the stage for raising prices.

A clutch of Indian companies has turned increasingly vocal about their inflation concerns, setting the stage for rising prices that could test the central bank’s resolve to keep borrowing costs lower for longer to support the economy.

Companies from Hindustan Unilever Ltd., the Indian arm of Unilever Plc, to Nestle India Ltd. have pointed to profit-squeeze from higher input costs and supply chain strains, while the likes of Dabur India Ltd., a maker of packaged honey and hair oil, and Britannia Industries Ltd. have already passed on some of the increased costs to consumers.

That could see India’s headline inflation snap a four-month slowing trend in October, with data due later Friday expected to show the print inching up to 4.4%, according to the median estimate in a Bloomberg survey of economists. Consumer prices are seen accelerating further as a higher base of comparison from a year ago fades.

“There is no substitute for price increases in an environment like this,” Varun Berry, managing director at Britannia, told analysts in a post-earnings call this month. “So we have actioned price increases.”

While several central banks have responded to price pressures by raising interest rates, the Reserve Bank of India has stuck with its inflation-is-transitory narrative as it sees the headline number edging lower on higher food output after a bountiful monsoon.

The expected food price-led moderation in India’s inflation was cited by Governor Shaktikanta Das as reason enough to continue with the easy monetary policy to support what he called a “delicately poised” economic recovery. The RBI’s rate-panel is scheduled to meet early next month to review policy settings.

Although the central bank sees inflation ending at 5.3% for the year ending March 2022, well within its 2%-6% target range, economists see the headline number hiding persistent price pressures.

“The year-on-year estimates of retail inflation mask the real inflationary undercurrent prevailing in the economy due to statistical base effect,” said Jay Shankar, chief economist at Incred Capital in Mumbai. “Corporate results continue to underline the raw material inflation led hit on margins, and is likely to persist for a few more quarters due to the slack in the economy.”