According to an independent research house (CRISIL), Indian households are spending more; an additional of Rs.5.8 trillion. The study shows that growth of private consumption expenditure in nominal terms increased to nearly 17 per cent per year.
“The rise in inflation to 8 per cent per year during 2008-09 to 2010-11 from five per cent in the preceding three years eroded the purchasing power of money and inflated the consumption expenditure bill of Indian households by Rs. 5.8 trillion” says Dharmakirti Joshi, Chief Economist at CRISIL.
“The middle and high income groups benefit more from falling prices of non-food manufactured items particularly durable goods, as they have higher disposable income to spend on other goods and services including consumer durables and for savings. The poor, with limited discretionary income to spend on consumer durables, do not benefit much from their lower prices. In contrast, rising prices of food items strain their discretionary spending,” he added.
“Contrary to general perception, prices of several commodities do decline even during periods of high inflation. Prices of many consumer durables have declined in the last few years. If adjusted for improvement in quality of goods, the decline would be even sharper. Consumers immediately feel the impact of rising inflation in food articles because these items are purchased on a daily basis.
Durables are not purchased frequently, and hence, a fall in their prices tends to be overlooked while forming inflation expectations” says Vidya Mahambare, Senior Economist at CRISIL.
The CRISIL study concluded that price trends of commodities in the Wholesale Price Index (WPI) favour the middle and higher income classes , rather than poor and vulnerable Indian households who spend large part of their income on food.
Sources: Economic Times