A client is using office 365 sharepoint online.I would like assign item permissions (from a field in the list that would list users or groups) automatically to an item. I reckon this can only be achieve via workflow. Can i use sharepoint designer 2013 workflow to achieve this?
Yes you can achieve this using designer Workflow since SharePoint 2013 designer also supports creation of SP 2010 workflows. Create a Workflow with SharePoint 2010 workflow platform(Since 2013 workflows does not have impersonation step). In the workflow add an impersonation step. Inside impersonation step add Replace List item permissions action. Give the necessary permissions to the user/group in the particular field. Start the workflow in item Added event.
See this blog for more details.