In a clear indication of things to come, homegrown FMCG major Dabur India [Get Quote] has decided to increase prices 5 per cent across most product categories to accommodate the sharp rise in the price of flexible packaging material made of polymers. This is the sharpest price rise effected by the company in eight years.

"The inflation in packaging material is almost 11 per cent because of the rise in crude oil prices," said the company's CEO, Sunil Duggal.

He also said that if the price rise was to continue unabated, Dabur may be forced to revisit some "sacred" price points for its products like 50 paise, Re 1, Rs 5 and Rs 10.

At least one more FMCG company confirmed to Business Standard that it too was pondering a rise in prices for the same reason. "The price of packaging material made from petroleum derivatives is going up," HK Press, executive director & president of Godrej Consumer Products [Get Quote], said. The company plans to raise prices 5-6 per cent.

Crude oil prices have hit $141 per barrel in the world markets, driven largely by increased consumption of automobile fuels in China and India.

Most projections have said these prices could rise further.

In the last few months, most FMCG companies have either raised prices or reduced pack sizes to combat the rise in farm commodity prices. This is the first time packaging costs are driving up prices.

However, the inflation in farm commodities has been low this time round, which has partly offset the rise in the prices of flexible packaging material. "The cost of food product has risen just 2 per cent and that is why our overall raw material cost has gone up 6 per cent," Duggal said.

However, he added that if crude oil prices were to cross the $150-per-barrel mark, it could make flexible packaging material more expensive. "In that case, our overall raw material cost will go up by almost 8 per cent, necessitating another round of price increase," Duggal said.

This could include some key price points, he said, adding he did not expect that to happen in the next three to four quarters. The extent of the next price rise would depend on the state of the market.

"If it comes down to choosing between protecting our profit margins and protecting our market share, we could go for the latter," Duggal said.

As regards the impact of the current price rise, he said there was no evidence of a slowdown in sales. But a further rise, he added, could lead to consumers cutting down on purchases.

According to Duggal, FMCG companies need to raise prices carefully as these are difficult to roll back. "The trade suffers the losses on stocks with higher price tags. That needs to be compensated by the company," he said.