Consumer sentiments at 30-month high despite inflation worries, global slowdown

By: Anshul Vipat

This Diwali, the market will be greeted with buoyant consumer sentiments. This is certainly a good news for our economy

First the bad news: The Indian economy is dealing with double whammy of inflation and plunging rupee.  International agencies have cut India's GDP growth, retail inflation has hit record high, continuing o remain outside RBI's comfort zone for record nine-months now. Food inflation has hit the highest mark in last 22 months. Inflation rate for vegetables is at a distressingly high 18.05 percent and trade deficit and repo rates are increasing month after month.

But not everything is going from bad to worse. At the time when prices are inching up, consumer confidence has hit a 30-month high. A recent report by the Centre for Monitoring Indian Economy (CMIE) shows that consumer confidence is slowly recovering in recent weeks after a prolonged period of subdued growth since the onset of the COVID-19 pandemic.

Nothing is dampening the spirit of consumers

The CMIE’s Index of Consumer Sentiments (ICS) rose from 72.70 in August 2022 to 77.80 in September 2022. Both the components of ICS - Index of Current Economic Conditions (ICC) and the Index of Consumer Expectations (ICE) rose by 7.9 percent and 6.5 percent respectively. Further, both components increased very well in rural and urban regions. The urban ICC increased by a handsome 8.3 per cent and the rural ICC was up by an equally impressive 7.4 per cent. In both regions, the respective indices of consumer sentiments were at their highest in 30 months.

Households’ perceptions regarding their current well-being seem to have improved quite substantially in September. This is somewhat in line with the improvement we see in the employment data. An increase in employment can be expected to have a direct bearing on consumer sentiments.

While consumer expectations grew in both, rural and urban regions, the rate of increase was much higher in urban regions than in rural areas. Urban regions recorded a 10 per cent increase in its ICE while rural regions recorded an increase of only 4.4 per cent. Rural India is a lot less optimistic on its income a year into the future. Poor rains and a smaller acreage in the north along with government efforts to rein in runaway food prices have possibly played a role in dampening spirits of the rural folks.

Changing consumer sentiments

Consumer sentiments seem to have changed track in recent months. It had hit an all-time high of 105 just before the pandemic hit the country and then dropped to the lowest levels during both the COVID waves. Then, between January and June 2022, the ICS grew in low single-digits every month, but it also was growing at a gradually slowing pace of growth. During July, August and September, the ICS’s growth has been volatile as it has alternated between growing at about 7 per cent and shrinking by 0.5 per cent.

The consumer sentiments makes one thing clear. Neither high inflation nor high interest rates dampened spirits of the Indian consumers. This is also reflected in the passenger vehicles and two wheeler sales that have hit record high. This Diwali, the market will be greeted with buoyant consumer sentiments. This is certainly a good news for our economy.