RBI Surveys Point To Plummeting Confidence, Rising Inflation Fears
Consumer confidence has fallen to the lowest in more than five years in May, according to an RBI survey.
Consumer confidence fell to the lowest in more than six years in May as people feared falling incomes and poorer employment prospects. Simultaneously, consumers feared an increase in prices of food products among others. That’s according to the latest round of forward looking surveys conducted by the Reserve Bank of India.
The consumer confidence indices collapsed with expectations for the present and outlook for the year ahead falling into negative territory, according to the RBI’s Consumer Confidence Survey. Consumer confidence collapsed from 115.2 in March to 97.9 in May—the lowest level since March 2014.
Future expectations, too, plummeted to 63.7 from an already low level of 85.6, further into the pessimistic zone. The range of current and the future indices lie between 0 to 200. An index value below 100 represents pessimism whereas a figure above 100 signals optimism.
Consumer perception on the general economic situation, employment scenario and household income plunged deeper into contraction zone though expectations on income for the year ahead remained positive.
While consumer spending remained in the green, largely led by spending on essentials, consumers reported sharp cuts in discretionary spending and don’t expect much improvement in the coming year, the survey found.
In view of the Covid-19 pandemic, the survey was conducted through telephonic interviews during May 5-17, 2020 in thirteen major cities, according to an RBI statement.
Inflation Expectations Rise
Simultaneously, households expect inflation to harden, with median inflation perception and expectations increasing sharply in May compared with March, showed a separate RBI survey. Three-month and one-year ahead median inflation expectations rose by 190 and 120 basis points, respectively, over the previous round, according to the survey.
Consumers expect an increase in the prices of food products, along with a general rise in prices over the next three months. However, the prices of all product groups, especially cost of housing, are expected to ease over a year-ahead period.
Professional Forecasters’ Survey
A professional forecasters survey conducted by the central bank showed that real GDP is likely to contract by 1.5% in 2020-21 and grow by 7.2% in the following year.
Real gross value added (GVA) is expected to decline by 1.7% in 2020-21 but is likely to record 6.8% growth in 2021-22, the survey showed.
These estimates are collated by the central bank but are different from the RBI’s own estimates. This year, the RBI has not provided a forecast for growth or inflation in light of the prevailing uncertainty.