Indians Brace for High Inflation as They Curb Spending
A man examines an insect repellent manufactured by Godrej Consumer Products at a store. (Source: Godrej Consumer Products)

Indians Brace for High Inflation as They Curb Spending

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Consumers in India expect inflation to remain high over the next year, further hindering their ability to spend at a time when confidence is at a record low because of job losses and wage cuts.

Households’ median inflation expectations over a one-year period remained elevated at 10.3%, according to the latest survey from the Reserve Bank of India. A separate study showed consumer confidence, as measured by the current situation index, falling to an all-time low of 49.9 in September.

The findings mirror a broader divergence between consumer and wholesale inflation in the economy. The latter reflects subdued factory gate prices because of a slump in demand amid the pandemic, while retail prices continue to surge above the central bank’s 2% to 6% target band because of supply side shocks and costlier food and fuel. The RBI’s goal is to keep retail inflation at the 4% midpoint of the target range.

Indians Brace for High Inflation as They Curb Spending

Data Monday showed retail inflation accelerated to 7.3% in September, while WPI figures -- scheduled for release on Wednesday -- are likely to show factory-gate inflation at 0.9%, up from 0.16% in August.

“Manufacturing firms polled in the July-September 2020 round of the Reserve Bank’s industrial outlook survey expected selling prices to remain unchanged in the third quarter of the financial year on the back of benign input cost pressures,” the central bank said.

Indians Brace for High Inflation as They Curb Spending

The central bank, which last week kept interest rates unchanged, forecasts consumer price-growth to ease to 4.5% in the first three months of next year, and slow to 4.3% in the following quarter.

Although inflation has been above the targeted range, “the MPC judges that the underlying factors are essentially supply shocks which should dissipate over the ensuing months as the economy unlocks, supply chains are restored and activity normalizes,” the central bank said.

©2020 Bloomberg L.P.

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