Middle class feels inflation  pinch,  cuts down on purchases

Inflationary trend may continue as the commodities’ outlook does not indicate any softening, said some analysts

Suneera Tandon
Updated14 Dec 2021, 07:47 AM IST
The standard 1-litre cooking oil bottles are being edged out of shelves by smaller packs.
The standard 1-litre cooking oil bottles are being edged out of shelves by smaller packs.

Rising prices of everything from computers to cooking oils are reshaping how Indians consume goods. The country’s poor and middle-income households are opting for smaller packs and postponing purchases of costly items such as electronics and appliances, several companies said.

Nowhere is the trend more evident than cooking oils, with the standard 1-litre bottles being edged out of supermarket shelves by smaller, more affordable 750ml or 500ml packs.

New Delhi-based Ejaz Naqvi, a freelance writer, said her monthly expenses on groceries and household goods have shot up. “Every vegetable has become expensive, and so have cooking oils,” said Naqvi, who switched to cheaper cooking oil from the pricey Canola oil the family of four used earlier.

Worry lines

The cost of manufacturing and transporting goods has risen sharply amid disruptions in global supply chains and a surge in fuel prices even as demand for goods and services increases as the pandemic ebbs. As a result, many companies are selling smaller packs or cheaper versions of products to soften the blow on customers and avoid alienating them as they pass on rising production costs.

Prices of some raw materials are at a 40-year high, brokerage Edelweiss said in an 8 December note on the consumer goods market. Paint companies, for instance, took a price hike of 18% year-on-year, while Hindustan Unilever Ltd raised prices by 7%, and biscuit companies by about 10%, the report said.

Krishnarao Buddha, senior category head at Parle Products, said people postpone purchases of discretionary items and consumers down-trade during such inflationary periods.

“That is what we are noticing as well,” he said, adding that the change was particularly evident in middle and lower-income households. Since April, Parle Products, which sells the popular Parle G biscuits, said it has been taking price hikes across brands. The company will continue increasing prices until March, he said, adding that only the affluent in large cities continue to buy expensive products.

Saurabh Baishakhia, president of appliances at Usha International, said while pent-up demand for home appliances is strong, the firm is seeing some emerging pressure from what it calls “rational” consumers.

“The ‘rational’ buyers who are almost close to 40-45% of the market—who typically work on a ticket size purchase—we have seen a bit of down-trading if it doesn’t suit their budget. So, while value-conscious is looking at premium range, rational consumers are down-trading,” he added.

The company said it is “optimizing” its portfolio to ensure it can address the needs of consumers across price points.

Citing household data released by the central bank, Mint reported on Monday that consumers remained pessimistic about the prevailing economic situation in November. Even as spending levels on essential items increased, people were still hesitant to spend on non-essential items.

Kamal Nandi, business head and executive vice-president of Godrej Appliances, said with households diverting more expenditure toward medical exigencies during the second wave—there are fewer consumers with discretionary income to spend.

This was especially affecting the mass segment of the consumer electronics and home appliances market, he said.

“Inflation is cutting into discretionary spending. As a result, you will see big-ticket purchases getting postponed,” he added. On the premium end—volumes were robust, he said, a trend that has held steady over the last six months.

In a 19 November interview, Saugata Gupta,chief executive, Marico Ltd, said when there’s continuous inflation, the trend of people upgrading from unbranded to branded or smaller brands to large brands tends to slow down.” However, Gupta is hopeful the phase is transient.

With shoppers cutting back on discretionary spending, manufacturers are also feeling the squeeze. Data by market researcher Nielsen IQ said 14% of small consumer goods brands exited the market in the September quarter. It said this was on account of consumers moving to cheaper products or switching to unbranded goods.

Ullas Kamath, joint managing director of Jyothy Labs, which makes Pril dish washing liquid and Ujala whitener, said high inflation was especially hurting rural households. “In rural, 60% of household spending is on food. In general, the food basket has become expensive,” he said. This pressure is more visible in the middle- and lower-middle class, he said.

Demand for packaged consumer goods in villages dwindled in the September quarter—volumes declined by 2.9% from a year earlier, Nielsen IQ said.

Inflationary trend may continue in near term, as the commodities’ outlook does not indicate any softening, said Rakesh Khanna, managing director and chief executive officer, Orient Electric Ltd. Khanna said the company raised prices to offset cost pressures.

Usha’s Baishakhia said prices may be revised soon if raw material costs do not climb down. “There’s been a 20-25% increase in cost over the last one year, and the company’s taken 15-18% price increase. We have been trying to absorb the impact. We don’t want to outprice ourselves to the consumers,” he said.

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First Published:14 Dec 2021, 07:47 AM IST
HomeNewsIndiaMiddle class feels inflation  pinch,  cuts down on purchases

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