Inflation impacting consumer spending, says study

Consumers across urban India have been postponing major purchases over the past twelve months, spending only on essential item. This is their response to the prolonged inflation, says a report by consulting firm KPMG and the Retailers Association of India (RAI), the apex body representing retailers

of India.

High prices deter spending

Because of increasing prices, urban consumers have reduced discretionary spending in several categories and value-conscious consumers have been opting for bulk buying, says the study titled ‘Emerging Consumer Segments in India’. Reduced purchasing power has impacted a large segment of consumers, the report indicated.

The Reserve Bank of India expects inflation as measured by the Consumer Price Index to top nine percent in the three months to March 31, 2014, and range between 7.5 percent and 8.5 percent a year later. Consumer prices rose 9.87 percent in December, the fastest growth among 17 Asia-Pacific economies tracked by Bloomberg. In the 12 months to March, the RBI expects the economy to grow by a little less than last year’s pace of 5 percent, the slowest in a decade. Growth averaged 4.6 percent in the first half of the fiscal year.

Low consumer sentiment to continue

A January report by India Ratings and Research, a Fitch group firm, said the outlook for urban consumer sentiment is likely to remain subdued in fiscal year 2015 amid reduced affordability. Private final consumption expenditure, an indicator of consumer spending in the economy, for the quarter ended September 2013 grew to 2.2 percent, from 1.6 percent in the quarter ended June 2013—the second slowest growth in the last 37 quarters.

Even the Consumer Confidence Index, an indicator of consumer outlook towards the economy and personal spends, reflects the subdued mood of Indian consumer. Until 2012, this index in India was the highest among countries included in Nielsen’s quarterly Consumer Confidence Index, but it has been steadily slipping since. In the September quarter of 2013, it fell six points, pushing India to the third spot behind Indonesia and the Philippines.

KPMG’s report added that muted consumer spending due to prevalent economic uncertainties will likely drag into fiscal year 2015, affecting same-store-sales growth for the year.