Mid-income, poor households feel inflation squeeze

NEW DELHI: Higher prices of everything from fuel to daily-use goods are hurting middle- and low-income households. This is likely to squeeze demand for both essential and discretionary goods, companies and analysts said.

Companies are already reporting down-trading, while consumers Mint spoke to are seeing their savings erode.

The sharp rise in food prices is likely to hit the poor most, given that they spend most of their earnings on food.

“We estimate the rural bottom 20% and middle 60% of the income segments faced the highest inflation at 7.7%. In urban areas, the bottom 20% also faced higher inflation than other income segments. However, the burden was slightly less than their rural counterparts given the sharper rise of inflation in rural areas,” Crisil said in a note.

In March, retail inflation quickened to a 17-month high of 6.95%, led by surging food and fuel prices.

In New Delhi, 26-year-old Upendra Tiwari said high fuel prices are eroding his family’s savings. The food delivery executive with Zomato, said expenses have been on the rise since the beginning of the year. Tiwari could earlier do with fuel worth ₹100-150 daily. That cost has gone up to ₹200-250 a day. Savings, Tiwari said, have halved to ₹10,000 a month.

Executives in the packaged consumer goods industry said signs of consumer distress are becoming increasingly visible.

“It is definitely impacting overall household budget. We are seeing greater traction on smaller packs, priced at ₹5 and ₹10. There is an increase in consumption of these packs at the cost of large packs,” said Krishnarao Buddha, senior category head at Parle Products.

Another executive with an

FMCG company pointed to the dual trend in the market: “There are two classes of consumers— those who are still buying expensive products and paying a premium for goods—that audience does not care about price. There is another segment, which is massive, and they are the ones who are moving from, let’s say, 800-gram packs to 500-gram packs,” he said, requesting anonymity.

Abheek Singhi, managing director and senior partner, Boston Consulting Group, said internal research points to a visible impact of inflation on consumer demand. “We are seeing the aspirers getting hit the maximum or those with annual gross household income between $7,000 to $15,400,” Singhi said. “They are the ones who are feeling the pinch the most. At the top of the pyramid, you don’t see that much of an impact,” he added.

On Thursday, Refinitiv-Ipsos Primary Consumer Sentiment Index reported a dip in consumer sentiment among urban Indians in April.

Varuni Khosla contributed to this story.

REUTERS In March, retail inflation rose to a 17-month high of 7%.