Over the last two months, Mumbai-based Vishal and Ruchita Desai, has been more careful while shopping for grocery. Vishal says they have started comparing prices of items and picking up the cheapest ones.
This trend is on the rise with many families across the country, as salary increments have failed to keep pace with inflation.
Madhan Sabnavis, chief economist, CARE Ratings, says inflation is soaring due to which the real purchasing power of people has come down. People are spending less on consumer durables and laying more emphasis on essential goods. “Till now, companies were absorbing the rise in their cost of production. Now that they can no longer do so, it is being passed on to consumers. Prices of everything - from food to bakery items to electronics have gone up,” says Sabnavis. He, however, says interest rates will soon start falling and things will begin to look better by August or so.
| INCREASE OVER LAST YEAR (%) | |
| General Consumer Price Index | 7.4 |
| Food | 9.5 |
| Fuel, power and light | 10.9 |
| Clothes, bedding and footwear | 5.8 |
| Petrol* | 11 |
| *Petrol prices are from June 2011 to June 2012 | |
Expenses: 50 %
Investments: 20 %
- Grocery bills have shot up Rs 6, 000 a month
- Cutting on monthly trips out of the city
- Stopped investing in stock markets due to volatility
Expenses: 40 %
Investments: 30 %
- Petrol bill has gone up 20 per cent a month
- They have started downtrading while shopping for grocery
- Stopped investing in equities; on the lookout for safer alternatives
According to data from the Directorate of Economic and Statistics, the general Consumer Price Index in urban Maharashtra has gone up seven per cent in the last one year. The food index has risen 9.5 per cent, fuel, power and lighting index has risen by more than 10 per cent while the clothing and bedding index has moved up by 5.8 per cent.
Vishal says his food bills have risen by almost Rs 6,000 a month since the beginning of the year.
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Just two weeks ago, oil marketing companies announced a massive Rs 7.50 a litre hike in petrol prices, which was rolled back by Rs 2 a few days later. Nonetheless, people are paying 11 per cent more for petrol than they did a year ago. Diesel prices are also expected to go up soon.
Bhaskar, who drives to work every day, says his petrol bill has gone up between 15-20 per cent in the last six months. He now spends an average of Rs 10,000 a month on petrol. Same is the story with all who drive regularly. People are doing as much as they can to curb expenses on this front too. He says that they are trying as much as possible to cut down on eating out or even going out, as the price of petrol has become a major consideration for them now.
Like many, this couple has received lower-than-expected increments. “Many companies are going slow on hiring this year, what with the slowdown. And the percentage of increments that many are giving is much lesser than usual,” says E Balaji, chief executive officer (CEO), Randstad India.
With the prices of just about everything rising, many households are going in for self-imposed austerity measures.
“We are fond of travelling, we make it a point to visit different places every month, but with petrol prices and other economic setbacks, we have to restrict a lot on various other things, including eating out,” says Vishal.
Cutting back on consumption by consumers has visibly hit the fortunes of many companies. Monsoon sales. which usually start in the month of July, have already begun. This is a sign of inventory pile-up for companies. The CEO of a Mumbai-based retail chain says he is expecting this season to be leaner than usual. “We are actually seeing numbers dip, lately. We used to see double digit growth, but now that is not happening,” he added.
With stock markets also playing havoc with people’s money, many have even stopped investing in it and are looking at alternatives. In the last one year, the Sensex itself has fallen more than 10 per cent.
“I had planned to divert my savings for further investment, but could not do so due to the unexpected movement of the market and rise in expenses. As a result, my investment planning has gone haywire,” says Vishal. The couple invests 20 per cent of their total household income (Rs 6 lakh) in debt and equity instruments.
Bhaskar says that he has not invested a rupee in the market for the last three to four months as market has been too volatile and it doesn’t seem to have hit the bottom yet. Their household income is Rs 25 lakh a year, of which they invest 30 per cent in various instruments like mutual funds, gold exchange traded funds and so on. “We are trying to find alternative investment avenues like real estate and small business opportunities,” he added.
Amar Ranu, senior manager (third party products), Motilal Oswal Private Wealth, has a simple advice: This is the opportune time to invest in equities. “Valuations are quiet cheap and for long-term investors volatility should not be a cause of concern. Even debt instruments can bear fruit if one were to invest now.”
For those looking at investing for the short-term - one to two years - Ranu says short-term debt funds (9.68 per cent returns) are a good option. For two to four years, he says income funds (9.67 per cent returns) are a good bet. And for longer tenure, corporate bonds can give you returns of more than 10 per cent.