Consumer confidence fell to a new all-time low in May, shows RBI survey

Consumer confidence fell to a new all-time low in May 2021 as consumer perceptions on general economic situation and employment scenario lowered further, the Reserve Bank of India (RBI) said on June 4.

The second wave of the Covid-19 pandemic in April and May this year has led to lockdowns and business restrictions in different parts of the country and also affected consumer sentiment.

The central bank measures consumer confidence in terms of the current situation index, which has been in the negative territory since July 2019. The future expectations index also moved to pessimistic territory for the second time since the onset of the pandemic. “...this was driven by sharp fall in expectations on general economic situation, employment scenario and household income over one-year horizon,” the RBI said in the outcome of its forward-looking surveys.

Simultaneously, household spending weakened in the latest survey round, with essential spending showing signs of moderation while non-essential spending continued to contract.

The consumer confidence survey was conducted through telephonic interviews during April 29 to May 10, 2021 in 13 major cities. Perceptions and expectations on the general economic situation, employment scenario, the overall price situation and own income and spending were obtained from 5,258 households across these cities.

A separate survey on the inflation expectations of households revealed that the median inflation perception for the current period (April 29-May 11) rose by 150 basis points (bps) from the previous round of the survey. A basis point is one-hundredth of a percentage point.

The median inflation expectation for both - three months ahead and one year ahead periods increased by 70 bps each in the latest survey round. About 60 percent of the respondents were found to be expecting higher general inflation over the next three months as well as over the next one year.

“Households expect higher rise in prices over one year horizon when compared to one quarter horizon for non-food products, household durables, housing and services,” the RBI said in the outcome of the inflation expectations survey, which was conducted through telephonic interviews with 5,979 urban households during April 29 to May 11, 2021 in 18 major cities.

The survey of professional forecasters, for which the central bank received results in May, saw the real gross domestic product (GDP) growth projection for FY22 being lowered from the last survey round to 9.8 percent. In FY23, GDP growth is estimated at 6.5 percent. Forecasters have assigned the highest probability to real GDP growth lying between 9.5 percent- 9.9 percent in 2021-22, followed by the range 10 percent- 10.4 percent. For FY23, forecasters assigned the highest probability to the range 6 percent- 6.4 percent.

Headline consumer price index (CPI) inflation is expected at five percent during the first two quarters of FY22 and to moderate thereafter to 4.4 percent in Q3FY22. The inflation projection for Q4FY22 is pegged at 5.1 percent.

The current account deficit is expected at 0.8 percent of GDP at current market prices in FY22 and at 1.3 percent in FY23. The rupee is likely to remain range bound between 73.50 and 74.70 per US dollar till Q4FY22.