Year in Review: How inflation pinched pockets of Indian households in 2024

Indian households grappled with soaring prices in 2024 as inflation strained budgets and reduced purchasing power. High inflation rate cut into savings and curbed discretionary spending of consumers

Inflation posed significant challenges for Indian households in 2024, driving up the cost of essential goods and services and tightening consumers’ budgets. The GDP growth rate fell to a seven-quarter low of 5.4 per cent in the July-September period, mainly attributed to diminished consumers’ real purchasing power which reduced spending on non-essential goods and services.  Here’s a breakdown of how inflation reshaped household finances and the broader economy:

 

Food prices: Food inflation remained high throughout the year, with a notable surge in vegetable prices. There was a slight decrease in retail inflation (CPI) in November, falling to 5.48 per cent from 6.21 per cent in October, while wholesale inflation (WPI) moderated to 1.89 per cent from 2.36 per cent over the same period. However, the cost of essential items continued to strain household budgets.

 

Consumer spending: Elevated food prices led to reduced discretionary spending, especially during the festive season. Retailers observed a slowdown in sales of electronics and home appliances, with growth rates falling short of expectations. This trend was attributed to households allocating a larger portion of their income to groceries, leaving less for non-essential purchases.

 

According to an EY report, rising household debt, driven by increased retail borrowing such as personal loans and credit card usage, also restricted consumer spending. As more income is allocated to debt repayment, overall consumption continues to be impacted.

 

Savings rates: Savings have long been the backbone of financial stability in Indian households. However, India’s household savings rate repeated last year’s trend into FY25, with nearly half of households reporting a dip in savings and earnings, according to a Local Circles survey. Household borrowings rose to 5.8 per cent of GDP, marking the highest levels since the 1970s. To maintain their standard of living amid increasing expenses, many families dipped into their savings, leading to concerns about long-term financial security.

 

Employment and wages: While small businesses in sectors like manufacturing, trade, and services added approximately 11 million jobs during the year, wage growth was limited due to high inflation. The average annual salary increase of 13 per cent did not keep pace with the rising cost of living, resulting in diminished purchasing power for workers.

 

Economic growth: High prices adversely affected demand and economic growth. The Reserve Bank of India noted that aligning inflation with its 4 per cent target is crucial for sustainable growth. Despite maintaining key interest rates, the central bank acknowledged that elevated inflation was impinging on the country’s economic expansion.

 

Overall, the persistent inflation in 2024 eroded disposable incomes, curtailed consumer spending, and posed challenges to economic stability in India. However, the RBI anticipates an economic rebound in the second half of the fiscal year 2024-25 due to a revival in rural demand and government investing in infrastructure projects.