Brace for another 10-20% price hike on appliances from January 2019

Customers are staring at another round of price hike by appliance makers from January 1 onwards. The up to 20 percent price hike is due to a weaker rupee, which has led to an almost 20 percent increase in manufacturing costs.

The depreciation in the rupee versus the dollar coincides with the recent customs duty hike from 10 percent to 20 percent. The rise in manufacturing costs have been fuelled by the rise in petrol and diesel prices in the country.

On October 4, the rupee touched a fresh low of 73.81 per dollar on the back of strong dollar demand from importers, amid rising global oil prices.

“We have been absorbing higher costs for almost a month. The customs duty hike forced white goods companies to increase prices by 5-8 percent. But rising production costs have hit companies hard and we cannot hold on beyond December,” said the chief of a large appliances maker.

Among products, air conditioners and washing machines will be the worst hit. Sources told Moneycontrol that prices could rise by as much as 15-20 percent since imports have become expensive from a taxation perspective. Also, unsold inventory and a deficient monsoon will mean that sale of these two goods will be minimal in 2018.

To offset the impact faced in 2018, consumer durables companies will pass on increased costs of production to customers from next year.

On October 3, oil prices touched a four-year high, with Brent crude at $86.74 a barrel. On MCX, October 19 crude oil contract closed at Rs 5,646 per barrel on October 3.

A litre of petrol now costs Rs 91.34 in Mumbai, an increase of 14 paise. Diesel costs an additional 21 paise in the financial capital at Rs 80.10.

In Delhi, petrol touched Rs 84 per litre, an increase of 15 paise. A litre of diesel in the national capital now retails at Rs 74.75, up 20 paise.

Since the appliances industry is dependent on the logistics and transportation industry to move raw materials and finished goods from one place to another, oil price fluctuations impacts the business.

India has recorded below normal rainfall to the tune of 91 percent of the long period average (LPA), according to a report by Skymet Weather. The four-month-long southwest monsoon season officially ended on October 1.

Cumulative rainfall across the country between June 1 and September 30 was 84 mm below normal at 804 mm.

Deficient rainfall directly impacts sales of washing machines because water cuts are a common phenomenon when the monsoons have been inadequate. Disposable income for purchase of products is also dependent on how the crop season has performed.

Crops like cotton, paddy and maize are heavily dependent on the south-west monsoons. Deficient rains impact crops that consequently leads to higher inflation.

Dealers told Moneycontrol that apart from televisions that have been seeing a jump in sales, other products like air-conditioners saw a dip in sales due to unseasonal rains cooling down the weather across the country. Also, air conditioners are still taxed at 28 percent under the Goods and Services Tax regime.