Has inflation bitten into your monthly budget?

The prices are up, demand is likely to be down. If inflation does continue at these high levels, then recession might not be too far away

Published: 24th May 2022 07:50 AM  |   Last Updated: 24th May 2022 09:23 AM   |  A+A-

Express Illustrations | Soumyadip Sinha

Express Illustrations | Soumyadip Sinha

Have you been bitten? Has inflation bitten you hard and tight? The recent months have seen prices rise and purchasing power fall in India. The “I-word” is incidentally sweeping the world at large as a post-pandemic reality, if you haven’t noticed it yet.

Have you felt the pressure of higher prices bite into your monthly budget? Has the cost of living in India gone up dramatically over the last several months? And is the blame being laid right at the doorstep of the Ukraine-Russia war and the high prices of crude oil (last at $112.5 per barrel)? And is this the cost one pays for living in a highly inter-connected and dependent world when it comes to the movement of goods and services? Many questions.

The fact remains that India is witnessing very high prices at the market level. The Wholesale Price index (WPI) for April 2022 stands at 15.05% and the more palpable Consumer Price Index (CPI) stands at a big 7.8%. The US inflation numbers hover around the 8.3% mark as opposed to their internal comfort target of 2%. Inflation is a global Dracula on rampage.

Looking within India, the recent Ministry of Commerce and Industry numbers for April 2022 reveal that kerosene (still used widely at the bottom of the pyramid of consumption) stands at a whopping 118% in WPI terms month-on-month as compared to one year ago. The costs of cabbage, radish and karela (bitter gourd) have increased by 75–88%. Petrol is expectedly at 61% with a relatively free-market global pricing structure adopted by India. In short, the prices of everything from potato (+20%) to coriander (+48%) have gone northwards. The home shopping basket brings in less but you and I spend a lot more than ever before.

How does a middle-class family manage all this? How does a family at the lower end of the earning spectrum react to high prices? A simple solution would be if wages of all were to be adjusted to inflation as well. But then that is an utterly stupid utopian solution, right? Things that happen in utopia don’t happen in the real world you and I live in.

The LIG (lower-income group) and MIG (middle-income group) household need to make adjustments and they do. Since the outflow of the monthly purchase expenditure on the basket of products and services cannot be stretched endlessly and dug out from the savings kitty, the shopping basket starts to look different. The hunt for the cheaper replacement is on in the category of fruits and vegetables, just as it is on in the case of staples and non-staples. Is there cheaper dal around? Is there cheaper chana around? Substitution happens. Lower-quality and lower-nutrition products enter the purchase basket as well. The dining thali looks different. A watery rasam replaces a nutritiously thick sambar. The housewife is on a quest to ensure that the quantum of food on the thali is not reduced. Subliminally however, and without the overt knowledge of many, nutrition suffers. Inflation has taken its bite. And how.

When fewer clothes are sent to the dhobi for washing and ironing than before, it doesn’t matter as much as when less nutrition is going into the gut of the family. The services category suffers. New buys of auto and durables suffer as well, but this really affects these highly inflation-sensitive categories and their manufacturers. It doesn’t affect the well-being of the consumer in real terms. Yes, there is a recessionary impact on these categories, but there is the promise that it will all return and business will be back as usual, as the Inflation Dracula goes back into his, her or their cave. Wherever that is.

In the FMCG market for goods and services, there is quick brand-substitution. My recent research in the category indicates an 8% replacement of brands in the LIG as opposed to a 19% replacement in the MIG homes over the last three months ending 30 April 2022. Do remember that the LIG homes don’t seem to have any option for a downgrade, as they already live with bottom-rung popular brands. The UIG homes are as yet not rattled at a 1.4% replacement norm today. Premium brands are replaced by more realistically priced options in the market. Add to it the solution of “use-less and stretch-more” that kicks in instinctively. Product use is controlled even on the recently downgraded and substituted brand. A toothpaste saved is a toothpaste earned.

Inflation is the big dragon in the room then. As the Ukraine-Russia war continues into its 90th day, Brent crude oil prices threaten to nudge $120 per barrel and China keeps its production closed due to its Omicron wave, expect this bite to continue, hopefully at the same level, if not double-digit inflation levels, sooner than later.

Inflation is a balloon that fills endlessly. Inflation chokes. In many ways it hollows out consumption. The first inputs that suffer are those that go into the body as food and drink, then into services of every kind, into production raw materials where input cost is debated to death and replaced at times with inferior stuff. And this hollows out the product and its quality as well. In my research across the category of FMCG consumables and durables of every kind, including soft industrial materials and chemicals such as PVC and PU, inflation reigns at 26% and threatens not to come down in the long run by more than 8%. Sadly, prices, when they go up, don’t really come down to the last level they occupied.

They reign forever at a higher point. At this point of time, however, many manufacturing industries that depend on key raw materials with tightly controlled prices are battling the challenge of how to manage all this. Supply arteries are choked and raw material prices are causing a supply-side heart attack among industries.

The question must be asked. If inflation does continue at these high levels, then is recession not too far away? The prices are up, demand is likely to be down. A stagnant economy is a ripe spot for a recession. And recession is really a cascade that has a domino effect across countries. If the US sneezes, the whole world catches a cold. Even today. A price one pays for thriving and living in a very inter-connected world.

As I close this rant on inflation, it is important to remember that price rise globally is a political animal as well. Opposition parties in every country love inflation and its pressures as it gives them a palpable plank to climb and dominate the debate from the other side—from the side of the voter. While geopolitics and international diplomacy may not be items that will be felt by the common citizen of a country, inflation bites. It bites not once, but time and again. It bites every time you get into the market to buy your daily consumables. Political parties will make merry on this one as well. As they do, the ruling party needs to do everything in its power to keep it all under control. The wheat export ban is one such move. Let’s wait for more. Many more.

Harish Bijoor, Brand Guru and Founder, Harish Bijoor Consults


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