Report says increase in expenditure is fuelled only by the rise in prices.
| Photo Credit: NIHARIKA KULKARNI
In November, 88.6% respondents in urban households said that their spending on essential items had increased from a year ago, the highest such share in the last nine years. In the same month, 30% of respondents said that their spending on non-essential items too had increased from a year ago, the highest in the last five years and six months.
These responses are a consequence of the consistent rise in prices. Close to 95% of urban respondents continued to feel in November this year that prices of commodities have increased from a year ago. The last time that less than 90% of respondents felt the same was in January 2021 — during the COVID-19 pandemic, when demand was low.
While a higher share of respondents felt that the prices and as a consequence, their expenditure had increased, less than 25% of them said that their income levels had increased compared to a year ago. This is the lowest such share in over a year and seven months.
So, more and more urban consumers are saying their spending levels are increasing, while fewer and fewer of them are reporting an increase in their income levels. This means that the increase in expenditure is fuelled only by the rise in prices and not because their purchasing power has improved.
Due to this, in the second half of 2024, a higher share of respondents were pessimistic about the Indian economy than those who were optimistic. This was not the case during many months of the first half of the year.
These conclusions are based on the Reserve Bank of India’s bi-monthly Consumer Confidence Survey, conducted across 19 major cities in November.
Chart 1 shows the share of respondents who said that the prices of commodities had increased/decreased/stayed the same in November compared to a year ago. The share of respondents who reported an increase in prices in November this year (94.3%) was the sixth highest in over a decade.
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Less than 1% of the respondents said that the prices had declined. A decreasing share said that the prices had continued to remain the same.
Chart 2 shows the spending perception on essential items. The 88.6% who said that spending on essential items had increased was the second highest in over a decade (it was even higher in June 2015) and the highest in the last nine years. Under 2% of the households felt that spending on essential items had declined and less than 10% of them felt that it had remained the same.
Chart 3 shows the spending perception on non-essential items. During the pandemic, consumers reported a sharp decline in spending on non-essential items — due to the sharp dip in demand and supply. However, post the pandemic, the share of households which reported a rise in non-essential spending consistently increased, reaching a peak of over 30% in the second half of 2024.
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Chart 4 shows perceptions on income levels. There was a consistent rise in the share of respondents who reported an increase in their income levels since the sharp dip observed during the pandemic. In the first half of 2024, a higher share of consumers reported an increase in income compared to a year-ago period, pointing to the reversal of the pandemic and its after effects on income. However, in the second half of the year, a higher share of consumers reported a decrease in income levels.
Chart 5 shows perceptions on employment, which mimic Chart 4, showing that job opportunities have shrunk.
Chart 6 shows the perception of the overall economic conditions, which also mimic the trends in Charts 4 and 5.
Source: RBI’s Consumer Confidence Survey – November 2024
vignesh.r@thehindu.co.in
samreen.wani@thehindu.co.in
Also read: Confidence about economy declines after consistent recovery
Published – December 16, 2024 07:00 am IST