Cost pressures are real. But are consumers being asked to pay more than the actual increase?
By Maya Batra, Senior Editor, Indiax.org
In recent months, a familiar explanation has appeared across India’s economy.
- A builder explains why apartment prices have increased.
- A retailer explains why household products cost more.
- A manufacturer announces another round of price revisions.
- A distributor warns customers to expect further increases.
The explanation is almost always the same:
“The Middle East conflict has increased costs.”
At first glance, the explanation sounds reasonable — because the Middle East remains one of the world’s most important energy-producing regions. Any military conflict, geopolitical uncertainty, or disruption to shipping routes can influence oil prices, freight costs, insurance premiums, and global supply chains.
But an important question deserves to be asked:
Does a rise in crude oil prices justify a 20–25% increase in everything from a tube of toothpaste to 3 BHK apartments?
Or are we witnessing opportunistic inflation across India, where genuine cost pressures are being used as justification for price increases that exceed the actual increase in costs?
This is a question that affects every household in India.
The Difference Between Inflation and Opportunistic Inflation
Let us begin with a simple distinction. Normal inflation occurs when costs genuinely increase. Examples include:
- higher crude oil prices
- increased transportation costs
- rising wages
- increased raw material prices
- higher electricity tariffs
In such cases, businesses may have little choice but to increase prices.
However, economists also recognize another phenomenon.
It is sometimes called:
- opportunistic inflation
- margin expansion inflation
- excuse-driven pricing
This occurs when companies use a legitimate external event as justification to increase prices more than necessary.
Consumers often lack the information needed to determine whether the increase is justified. As a result, businesses can push through larger price increases than actual costs would require.
The Psychology of Price Acceptance
One reason opportunistic inflation works is because consumers tend to accept price increases during periods of uncertainty.
Consider the following example.
A packet of biscuits that cost ₹20 rises to ₹22.
Most consumers will accept the increase if they believe transportation costs have risen.
But what if the actual increase in transportation costs only justified a ₹0.50 increase?
The remaining ₹1.50 becomes additional margin.
Multiply that behavior across millions of transactions and thousands of companies, and the financial impact becomes enormous. This is not necessarily illegal. But it raises important questions about fairness and transparency.
What Has Actually Changed?
The Middle East conflict has certainly created genuine economic pressures. Some of the most important include:
Higher Oil Prices
India imports the majority of its crude oil requirements.
Any increase in global oil prices eventually impacts:
- transportation
- logistics
- manufacturing
- aviation
- agriculture
This effect is real. We are not debating it. We are arguing about how much the effect is, and how much the effect is used for business profiteering.
Shipping Costs
Conflict zones create uncertainty for international trade routes.
Insurance premiums increase. Ships may need to take longer routes.
Fuel expenses rise. These costs eventually filter through the economy.
Import Costs
Industries dependent on imported raw materials may face:
- higher procurement costs
- delayed shipments
- inventory shortages
Again, these are legitimate concerns.
But Do These Factors Explain 20–25% Price Increases Everywhere?
The answer is generally No. The mathematics simply does not support such a conclusion. Let’s consider a simple example.
Suppose transportation represents: 8% of the final cost of a consumer product
Suppose transportation costs rise by: 20%
The final product cost would increase by approximately: 1.6%
Not 20-25%.
Even if multiple cost categories increase simultaneously, the final price impact is often far lower than many consumers assume.
Yet in many sectors, price increases far exceed underlying cost increases. This suggests additional forces may be at work.
The Shrinkflation Problem
One of the least discussed forms of inflation in India is shrinkflation.
Consumers often focus on price.
Companies increasingly focus on reducing the quantity.
Examples include:
- smaller biscuit packets
- reduced snack weights
- fewer units in household products
- smaller personal care products
The price remains unchanged. The quantity falls.
The effective price per gram or per unit increases. Most consumers fail to notice. This allows companies to protect or even increase margins without appearing to raise prices.
Every consumer product in India looks like a miniature version of the products in the West. Everything keeps shrinking. Some food product packages look like gimmicks, where the consumer is mostly paying for the packaging plus the tiny amount of food inside the package.
Consumer Goods: The Silent Markups
The consumer goods sector offers some of the clearest examples of possible opportunistic inflation.
Most FMCG products contain multiple cost components:
- raw materials
- packaging
- transportation
- labor
- marketing
- distribution
Only some of these are directly affected by oil prices. Yet broad-based price increases often occur across entire product portfolios.
This does not automatically indicate wrongdoing, but it is unethical. But what if every company is willing to be unethical? What if the regulators are also willing to accept unethical practices? Then, we arrive at the most common statement heard in India: “Well, this is how it is in India.”
But it does raise a legitimate question:
Are all price increases being driven by costs, or are some being driven by pricing power?
When consumers expect inflation, companies often gain greater freedom to increase prices.
Real Estate: The Bigger Question
Perhaps nowhere is the issue more visible than in Indian real estate. Across many cities, homebuyers hear a familiar message: “Construction costs have increased because of global tensions.”
Yes, some costs have risen: cement, steel, transportation, and labor.
However, these increases alone often cannot explain the dramatic rise in property prices observed in certain locations.
A residential apartment’s price depends on many factors:
Land Costs
Often the single largest component.
Demand
Strong demand can push prices higher regardless of construction costs.
Investor Activity
Speculative buying influences pricing.
Infrastructure Development
Metro projects, highways, airports, and industrial corridors can increase land values.
Developer Strategy
Some developers intentionally focus on premium segments with higher margins.
As a result, a 20–25% increase in apartment prices cannot automatically be attributed to the Middle East conflict.
The reality is usually more complicated.
The Information Gap
One of the biggest challenges facing consumers is lack of transparency.
Most buyers do not know:
- the actual cost structure of products
- how much transportation contributes
- how much raw materials contribute
- how much margin is being added
This information asymmetry creates opportunities.
Businesses know far more than consumers. As a result, consumers often accept explanations they cannot independently verify.
Is This a Scam?
This is where language matters. As journalists and analysts, we must be careful. There is a difference between:
Fraud
Deliberately misleading consumers about costs.
Opportunistic Pricing
Using favorable conditions to increase prices and margins.
The evidence does not support describing the situation as a nationwide scam. India’s economy is too large and diverse for such a broad claim. However, there is sufficient evidence to suggest that some sectors are experiencing a wave of opportunistic pricing behavior.
In other words:
A real problem is being used to justify larger price increases than the problem itself would require.
The Impact on India’s Middle Class
The consequences are significant.
India’s middle class is already dealing with:
- housing affordability challenges
- education expenses
- healthcare costs
- transportation costs
When consumers repeatedly encounter price increases that exceed actual cost pressures, purchasing power declines.
This affects:
- household savings
- discretionary spending
- investment capacity
Over time, it can weaken consumer confidence. And consumer confidence remains one of the most important drivers of India’s economic growth. But comapanies know that consumers can’t go away, hence the cycle continues.
What Should Policymakers Watch?
The solution is not excessive price controls. History shows that strict price controls often create shortages and distort markets.
Instead, policymakers should focus on:
Greater Transparency
Clearer reporting of cost drivers.
Competition
More competition reduces pricing power.
Consumer Awareness
Better public understanding of inflation.
Market Monitoring
Tracking sectors where price increases significantly exceed cost increases. Healthy markets require both freedom and accountability.
What Should Consumers Do?
Consumers also have a role to play.
Before accepting price increases at face value:
- compare alternatives
- monitor quantity reductions
- examine unit pricing
- question unexplained markups
Information is one of the most powerful tools consumers possess. The more informed buyers become, the harder it becomes to justify excessive pricing.
Conclusion: The Question India Should Be Asking
The Middle East conflict is real. Oil prices matter. Supply chains matter. Shipping disruptions matter. Cost pressures are genuine. But genuine cost pressure does not automatically justify every price increase that consumers encounter.
The most important question is not whether prices should rise.
Some certainly should. The more important question is:
Are prices rising by the amount necessary to cover costs, or by the amount businesses believe consumers will tolerate?
That distinction may define India’s inflation story in 2026. And it is a question worthy of continued investigation. Because transparency is not anti-business. Transparency is what allows markets to function fairly. And in a country of 1.4 billion people, fairness in pricing matters.