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Business News/ Industry / Retail/  High inflation, unemployment may derail retail spending in India: GlobalData
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High inflation, unemployment may derail retail spending in India: GlobalData

While weakened currency boosts exports, it simultaneously increases the price of raw material imports, thereby adding to the price of end products, which is borne by financially strained consumers

Despite an increase in WPI inflation, surprisingly retail inflation fell to 4.29% in April from 5.52% in March 2021 (Bloomberg)Premium
Despite an increase in WPI inflation, surprisingly retail inflation fell to 4.29% in April from 5.52% in March 2021 (Bloomberg)

NEW DELHI: India’s record-high inflation and rising unemployment rate due to the second wave of the coronavirus infections could threaten retail spending in Asia’s third-largest economy, according to data analytics company GlobalData.

The country’s wholesale price inflation touched a record 11-year high at 10.49% in April due to the rise in prices of oil, manufactured goods, minerals, and food products such as eggs and meat. As the country continues to reel under the second wave of the pandemic, the unemployment rate shot up by 8% in April causing 3.4 million salaried employees to lose their jobs.

“The heightened inflation rate along with an equally high unemployment rate is weakening consumer sentiment and affecting their purchasing power. While weakened currency boosts exports, it simultaneously increases the price of raw material imports, thereby adding to the price of end products, which is borne by financially strained consumers. This further adds to the worsening of domestic sentiment in India," Ankita Roy, Retail Analyst at GlobalData said.

The Indian rupee depreciated to 75.35 against the US dollar in April from 72.35 in March.

Roy said effective vaccine rollouts and trade diversification led to the revival of the economy and infused a sense of optimism in commodity markets such as the US and China, thereby resulting in soaring commodity prices. “This along with the weakened Indian currency has significantly increased landed cost and import prices, thus placing downward pressure on India’s economy," he added.

Despite an increase in WPI inflation, surprisingly retail inflation fell to 4.29% in April from 5.52% in March 2021. “However, if the situation persists, retail inflation is also likely to go up due to supply-side disruptions, costly imports, and high landed costs," Roy said.

According to GlobalData, retail sales are expected to grow by 13.6% in 2021. “However, lockdowns, low propensity to spend on discretionary products and an anticipation of the third wave of the pandemic are set to dampen the retail outlook in the country," he added.

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Published: 27 May 2021, 12:00 PM IST
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