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Consumer sentiment fails to keep up with rising income: CMIE


The improvement in consumer sentiments post lockdown have not kept pace with improvement in household incomes and this will continue to impact demand and long-term investments, the Centre for Monitoring Indian Economy said.

CMIE data shows the index of consumer sentiments stood at 55.1 in February, half the pre-lockdown levels. Consumer sentiment index stood at 105.3 in February 2020, which was just a month before the lockdown.

As per CMIE, this is despite the consumer sentiments seeing a steady improvement as it rose by 2% in February 2021 over its level in January, by 1.7% in January and by 2.7% in December 2020.

“Consumer sentiments are important because they reflect the intangible component of households’ economic decisions. These are decisions to buy non-essentials such as homes, cars, two-wheelers or refrigerators,” CMIE said in its weekly analysis.

According to CMIE, sentiments matter as they also influence households’ decision on making long-term investments. “Incomes may rise to recover lost earnings of the lockdown or asset prices may gallop past rationality but if households do not feel good about their own current and future economic well-being they are less likely to spend even if they get wealthier,” it said.

Preliminary estimates derived from the Consumer Pyramids Household Survey indicate that while household incomes have recovered partially, household sentiments have not recovered commensurately.

CMIE data shows average Indian household incomes were 33% lower in the first quarter of 2020-21 compared to the first quarter of 2019-20 while the consumer sentiments fell by 59%. In the second quarter, average household incomes were down by 14% compared to the year-ago quarter while the consumer sentiments were still 57%.

“It is instructive to note that sentiments do not rise proportionately with income increases. And, till sentiments don’t improve, demand will not pick up in line with income improvements,” CMIE said, adding perceptions of households regarding their own well-being took a much bigger hit than the hit they suffered in terms of loss of income.

While CMIE cautioned that the above comparison is not entirely fair because while all households are equal when computing sentiments, all households are not equal when computing household incomes, it said this has probably led to the 2.4% fall in private final consumption expenditure seen in the official national accounts data released for the second quarter of fiscal 2020-21.

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