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Is consumer confidence back for real?

Photo: HTPremium
Photo: HT

The RBI has said that overall economic activity remains strong, with upbeat consumer and business confidence, and upticks in incoming high frequency indicators. It said the Omicron-led third wave of covid-19 is a flash flood. Mint takes a look.

The Reserve Bank of India (RBI) has said that overall economic activity remains strong, with upbeat consumer and business confidence, and upticks in incoming high frequency indicators. It said the Omicron-led third wave of covid-19 is a flash flood. Mint takes a look.

What  did  the  consumer confidence  survey  say?

RBI’s consumer confidence survey for the November 2021 round, obtained perceptions and one-year ahead expectations on the general economic situation, employment scenario, price situation, and own income and spending from 5,310 households across 13 major cities. It pointed to a modest pickup in confidence. The Future  Expectation  Index  displayed optimism and increased to 109.6 in November from 107 in September, mainly because of improving sentiments on overall economic situation,  employment,  and  income levels. The current situation index improved to 62.3 from 57.7, but it still trails pre-covid levels.

What are other indicators showing?

The latest economic indicators are showing a slowdown in economic activity, though not as sharp as the last wave. The Nomura Business Resumption Index fell to 102.9 in January from 120.3 in December. The QuantEco’s DART (Daily Activity and Recovery Tracker) Index for the week ended 16 January showed a contraction for the third consecutive week, though the pace of moderation eased from last week. The moderation in the DART Index was driven by traffic congestion, Apple and Google Mobility, railway passenger traffic, and online restaurant searches. E-way bills, rail freight, and electricity generation continue to hold up well.

Signs of optimism
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Signs of optimism

What about consumer confidence  in  other nations?

Consumer confidence has gradually started improving, though it is yet to reach to pre-pandemic levels in most countries. US consumer sentiment fell in January to the second lowest level in a decade. The UK’s consumer confidence edged lower in December, but is well above its level of a year earlier. Japan’s consumer confidence fell slightly in December.

What can be expected from 2022?

Economists expect consumer confidence to rebound if the covid-19 surge fades soon and supply chain bottlenecks begin to ease. As the slowdown in recent months has been more in rural and urban bottom of the pyramid, economists expect higher allocation for the rural economy in this year’s budget. The slowdown is because of the slower revival in services jobs and a sharp scale-back in government spending towards rural economy.  Economists also expect higher allocation in flagship schemes.

What is the impact on Indian companies?

According to Nomura’s 11 January report, most companies have hiked prices sharply, exceeding rural income/wage growth, because of the unprecedented increase in input cost. However, these price hikes have lagged those that have been made by smaller and unorganized players. This has led to organized players continuing to gain share. Price increases that are higher than wage growth are, therefore, likely to impact rural and urban volume demand this year. The data suggests a slowdown in rural demand.

 

 

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