New Delhi: Companies are set to face mounting cost pressures as the ongoing war between US-Israel and Iran disrupts supply chains and production, pushing up raw material prices in the months ahead.
Economists caution that rising energy costs and higher freight charges will add to inflationary pressures and squeeze margins in a wide range of sectors, including oil marketing companies (OMCs), fertilisers, ceramics and tiles, paints, tyres, chemicals, synthetic textiles and airlines.
Ranjan Sharma, senior director at CareEdge Ratings, noted that micro, small and medium enterprises are likely to be the most vulnerable to the conflict.
Petchem exposure
Data from S&P Global Market Intelligence show that the input price index (seasonally adjusted) rose to a 15-month high of 54.7 in February from 52.5 in January and 53.6 in February 2025.
A reading above 50 indicates expansion. “Going forward, rising costs of petrochemical-linked commodities, higher shipping and logistics costs and insurance premiums, and the weakening rupee will raise input costs across most domestic industries ranging from processed food and hospitality to textiles and automotive manufacturing,” said Hanna Luchnikava-Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence.
Sakshi Gupta, principal economist at HDFC Bank, emphasised that sectors with a high dependence on petroleum and natural gas in their intermediate consumption will face the greatest cost pressures.
Sectors such as air transport (48.7 per cent), trade (46.8 per cent), auxiliary transport activities (27.7 per cent), electricity (16.8 per cent), land transport (16.5 per cent), agriculture (10.3 per cent) and manufacture of chemical and chemical products (9.5 per cent) have a significant exposure to petroleum products in their intermediate inputs, according to FY22 data, the latest available.
WPI under pressure
Higher energy prices are expected to have a stronger effect on the Wholesale Price Index (WPI) than on the Consumer Price Index, due to the higher weight of petroleum, natural gas – 10.4 per cent against 4.8 per cent.
Wholesale inflation rose to an 11-month high of 2.13 per cent in February and is likely to rise further from March, as increased oil prices stemming from the Gulf conflict start feeding into manufacturing costs.
Several input materials recorded sharp price increases in February, including copper metal/rings (17.1 per cent), aluminium powder (17.5 per cent), aluminium alloys (14.8 per cent), brass metal (24.1 per cent), PVC insulated cables (13.4 per cent) and copper wire (20.7 per cent).
India Ratings and Research estimates wholesale prices to reach a 37-month high of 3.7 per cent in March, while IDFC First Bank and HDFC Bank forecast 3.6 per cent and 3.5 per cent, respectively.
Gaura Sengupta, chief economist at IDFC First Bank, expects the pressure to be most visible in the first quarter of FY27. She noted that even if the crisis is resolved soon, supply normalisation will take time, as production may require weeks to restart.
For FY27, HDFC Bank and IDFC First Bank project average WPI inflation at 4 per cent and 5 per cent, respectively. Gupta added that a 10 per cent increase in crude oil and related products could push headline WPI higher by 100-150 basis points.
Retail impact
If current conditions persist, some of these input cost increases will be passed on to consumers, economists said.
Luchnikava-Schorsch pointed out that stronger household spending, supported by goods and services tax (GST) rationalisation in September 2025, may allow firms to pass on part of the increased costs to consumers, while also being forced to absorb the remaining ones through lower profit margins.
Retail inflation is expected to average 5 per cent in 2026, according to S&P Global Market Intelligence. HDFC Bank projects that inflation could rise by 70-100 basis points to 5-5.5 per cent in FY27. It increased to 3.21 per cent year-on-year in February from 2.74 per cent in January.
