Inflation is currently the worst nightmare for the Indian finance ministry and despite interest rate hikes, things don’t look very good. Even during the 2008 recession, when the developed countries were struggling with a bleeding economy, India managed to swim through the troubled waters and maintain growth rates to the tune of 7-8%.
Turn to 2011, and the growth forecasts are being revised on a regular basis. Inflation has been cited as a major hindrance in the context of growth in emerging markets and investors have cited unabated inflation in India as a cause of concern.
Inflation for the common man simply means that the purchasing power is going down. The thing about inflation is the fact that the calculation is rather complex and even with a marginal decrease, consumers don’t see any changes in their purchasing power.
Things continue to become costlier and the recent petrol price increase despite crude oil prices going down is an example of that. Nielsen India has come up with a very insightful video / infographic highlighting how inflation has impacted the price of goods in India and how consumer spending patterns have shifted due to inflation.
Contents
Value of Winning During Inflation
The short video takes you through the price changes in various basic and necessary commodities, consumer spending behaviors and additional insights on what segments continue to flourish despite high inflation.Some of the highlights include
Price Increase Of Commodities in India
- Fuel Prices have gone up by 25% in the past one year
- Onion prices have gone up by 50% in the past one year (This is shocking and something that directly impacts the bottom of the pyramid)
Middle Class Is Spending Less *
- Majority of consumers in the segment say that they don’t intend to buy new clothes or take a vacation
- There are some positives as well. 75% of the consumers are opting for car-pooling to save fuel costs and a similar number are now carrying homemade lunches to office
Impulse Item Sales Jump
- Even as consumption of basic food items decreased last year, impulse item such as chocolates witnessed increased sales (in value terms)
The video also has some other data points which are especially useful for FMCG marketing folks. To see the incremental impact of price increases in a basis points may not seem too high but aggregated version does present a worrying picture. I mean onion prices have gone up by 50% for crying out loud. Wonder what’s in store as inflation in India continues to rise with a sure fire solution out of sight.
What are your thoughts on rising inflation and its impact on consumer spending behavior? Have you altered your spending patterns within the past year
*The data points are based on survey results from Assocham. I could not find out the total sample size but the trend is promising
It is a nice compilation of data available.
However the outlook has to change for government and people.
For example, the most important issue of petrol price hikes. I support increase of petrol prices. Many people in India are only trained and educated by opposition to rasie a hue and cry when ever petrol prices go up. Every two bit opposition leader shows the troubles casued by such increases. Does he think govt dont know about them? They weigh all options before deciding on a politically sensitive issue. On the other hand, people should be educated on knowing how much a barrel of crude will cost (prices vary on daily basis in international markets). How much it costs to convert crude into petrol, diesel and all others. How much govt is subsidizing on each liter of petrol and diesel. Then only they should cry. If govt withdraw all subsidy, the price will may be double. People have to understand that govt is doing them a favor every day by giving them petrol at half the price.
On the other hand, govt should take all steps to decrease inflation. They should not only act like a narrow minded bunch of creeps. When they increase interest rates with intention of tightening liquidity they are adding more fuel to the fire. With increased interest rates, industrial activity will slow down, products gets scarcer, prices will go up. On the other hand, if they decrease interest rates, industrial activity increases, manufacturing will grow and prices will come down.
Govt is increasing interest rates for industrial activity but they are damaging nation and environment by subsidizing auto loans. With inferior road networks, and increased vehicles (in some part due to cheap loans), every one is suffering.
Housing loans are to some extend at par with industrial loans, around 12%. However govt should tighten housing sector instead of encouraging. Only those needing houses should be encouraged to buy on loans. Like those middle class youngsters who join the Indian work force and are comfortable with loans.
If govt is concerned with providing housing for every one, they should build free houses for the poor. Not the present formula of attracting innocent, less informed earning people to be sucked into housing loan loop and later increasing interest rates.
Similarly agricultural loans. With present technology, ministries must be knowing every inch of space in India. How is the weather forecast, how is seed suply in each area, how is water availability in each area, how is fertilizer, pest control availability, what is expectation of crop for each item, what is international trends, what we should grow this year to take advantage of international prices, which we allow to be imported.
This is a big big supply chain management field. Just having a leader who represents a sugar belt lead the role is insufficient. Finally when agri minister recommends to export a product (his actual aim is to increase MSP for farmers at the cost of civilians), the finance ministry declines it( they are afraid of inflation figures if suddenly the price of a commodity shoots up like onions). So they want to keep the produce in India at any cost even if it casues rotting of produce.
There is no balance between these two.
I dont know if people read all these. But our democrasy is not the right model to impliment professional decisions in these fields. We need quick decisions to be taken in right time. We dont need committies, their recommendations, MPs review those recs, and debate in parliament and by the time a decision comes out, the outcome has no meaning at all. We need either a party with 2/3 mejpority to take decisions or a dictator (all just to take quick decisions in right time). China is an example, GCC countries are an example. When they see problem, they take quick decisions.
Just my two paisa :)
Altaf, in agreement with you for the most part. At some level consumers don’t understand the true dynamics at play (media does not do anything to educate either) and the government policies arent too full proof either. This is precisely the reason i did not add my commentary on what could/should be done. As a consumer i have a very narrow vision towards inflation/spending power and it wont be objective for me to comment on the anti-inflationary measures. However, i second the need for quick decision making