When Reserve Bank of India Governor D Subbarao spoke on Tuesday about a likely moderation in demand that should help reduce pricing power of the domestic manufactured goods industry, he was bang on.
Last year, fast moving consumer goods companies took price rises of 5-10 per cent on categories such as soaps & detergents and skincare, while hair and edible oils saw price rises in excess of 10 per cent.
Categories like automobiles and consumer durables, on the other hand, saw price rises of 5-7 per cent.
While consumer-facing businesses enjoyed the cushion of strong demand last financial year, that may not be the case this year.
Companies have begun seeing a moderation in demand, resulting in lower offtake of products.
This means pricing action may moderate in the next few quarters, as companies fret about retaining customers.
Sample this: Maruti, which sells close to 100,000 units a month, reported an offtake of 87,000 units for April, a drop of 13 per cent.
Tata Motors saw sales growth in single digits and it was no different Toyota and Honda.
If FMCG companies are taken into account, the slowdown has been visible from the last quarter.
According to Shirish Pardeshi, senior FMCG analyst at Mumbai-based brokerage Anand Rathi, volume growth of companies that have reported their results so far, has been 5 to 10 per cent, against 10-15 per cent in the previous three quarters.
"General inflation, led by food, has hit the share of wallet of consumers," Pardeshi says.
"This has impacted demand."
On an average, consumers spend half of their household budget on food alone.
When food inflation is high, expenditure on food can go up to 60-70 per cent of a consumer's household budget.
This leaves little room for expenditure on allied products.
"The result is a prioritisation of expenditure," says Anand Mour, senior FMCG analyst at Mumbai-based