The RBI’s Consumer Confidence Survey reflects a marginal improvement in March 2022 (-92.1) from January 2022 (-92.3)
The Reserve Bank of India (RBI) recently released the Consumer Confidence Survey and its findings are encouraging in many respects. The survey finds that consumer confidence for the current period continued on its recovery path. The period of assessment has been since the middle of 2021. However, the assessment is in the negative zone compared to the year ago period.
The heartening thing about this survey is the optimism around households’ current spending behaviour and outlook towards future spending. Households’ opinion about current and future spending remained in a positive territory and was bolstered by a rise in both essential and discretionary spending, the survey said.
The current situation index (CSI) improved further in March 2022 aided by improved sentiments on general economic situation in the country, employment and household income, the RBI survey noted.
The chart suggests that the perception on Economic Situation has improved marginally from (-) 48.9 to (-) 40.5.
The Consumer Confidence Index (CCI) at 71.7 shows improvement on all indicators barring one in March 22 versus 64.4 in January 2022.
The perception has improved on employment (from -48 to -35.9), income (-37.4 to 26), spending (from 48.4 to 53).
The survey also reflects acute pessimism around the price levels. On this parameter there is a negligible improvement in March 2022 (-92.1) from January 2022 (-92.3).
A one-year-ahead outlook as measured by the future expectations index (FEI) also remains optimistic, suggesting a continuation of its recovery path. It was briefly interrupted by the Omicron variant impact.
The CCI for one-year-ahead expectations compared to the current situation is 115 for March versus 103.3 recorded in January 2022.
The perception around all indicators barring that around the ‘Price Level’ has shown significant improvement in the survey. The perception around ‘Economic Situation’ has gone up from -1.7 to 13.5; perception about ‘Employment’ has gone up from 2.2 to 22.7; for ‘Income’ it has gone up from 29 to 44.3; for ‘Spending’ it has gone up from 55.8 to 64.1 and for ‘Price Level’ the perception remains unchanged at 68.6.
The survey was conducted during March 02 to March 11, 2022 in 19 major cities. The survey obtains current perceptions (vis-à-vis a year ago) and one year-ahead expectation on general economic situation, employment scenario, overall price situation and own income and spending from 5,984 households across these cities.
These results include six new centres (viz., Bhubaneshwar, Chandigarh, Jammu, Nagpur, Raipur and Ranchi) in addition to the thirteen centres for which results were disseminated up to the January 2022 round (viz., Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Mumbai, Patna and Thiruvananthapuram).
Households’ Inflation Expectations Survey
Households’ median inflation perceptions for the current period remained unchanged at 9.7 per cent in the latest survey round, while the expectations for both three months and one year ahead rose by 10 basis points each to 10.7 per cent and 10.8 per cent, respectively, as compared to January 2022 round, the RBI survey revealed.
For a majority of population and age groups, uncertainty in inflation expectations increased for both three months and one year horizons, as compared to the previous survey round.
Three months ahead expectations for overall prices and inflation were generally aligned to those for food and non-food products, while one year ahead expectations were more aligned to those for non-food products and services.
Inflation – the elephant in the room
The Consumer Confidence would hinge on how inflation situation remain over the course of the year. Global Inflation has been on the rise much before the ongoing Russia-Ukraine war. This forced many central banks including that of the US to hike interest rate or at least consider hiking it. Oil and other commodity prices have hit the roof and the situation remains precarious amid supply disruptions.
The US Federal Reserve, which will hold its Monetary Policy meeting in May will likely increase the interest rates by 50 bps to mitigate the impact of inflation.
On the domestic front, India reported a Wholesale Price Index (WPI) of 14.55 per cent, highest in four months and up from 13.11 per cent recorded in February.
India’s inflation based on the Wholesale Price Index (WPI) rose to a four-month high of 14.55 percent in March from 13.11 percent in February, according to data released by the commerce ministry on April 18. It was 7.89 per cent in March 2021. We have seen a 12 consecutive month of double-digit rise. (WPI measures and tracks the changes in the price of goods before they reach consumers.)
Meanwhile, retail inflation or Consumer Price Index (CPI) jumped to a 17-month high of 6.95 per cent in March 2022 from 6.07 percent in February. This is the third consecutive month in which CPI inflation has been above the 6 per cent mark which is above the comfort level (4+/-2) of the RBI.
The Reserve Bank of India (RBI) has just raised the repo rate (at which it lends money to commercial banks) by 40 basis points to 4.4 per cent. The rate had been reduced to a record low of 4 per cent during the Covid-19 pandemic. The central bank is already sucking access liquidity from the system to control inflation.
Raising rates is a double-edged sword and could cut both ways. On the one hand, it may potentially hit the consumption levels whereas on the other, it is required to control spiraling inflation.