Consumers remain pessimistic in July. Confidence levels fail to recover since Mar 2019.

The latest round of Consumer Confidence Survey conducted by the RBI in July showed consumers’ confidence recovering from the historic lows touched in July 2021, though it continues to remain in the pessimistic terrain since Mar 2019. The consumer confidence survey was conducted between July 07 to July 14 from over 6000 households in 19 major cities across India.

A value above 100 indicates higher consumer confidence (optimism) and a value below 100 indicates lower consumer confidence (pessimism).

The Current Situation Index (CSI) reflecting consumer sentiments about current economic, employment, and price conditions as compared to a year ago has been consistently declining since Mar 2019. Ever since the outbreak of Covid, consumer confidence has remained in the pessimistic zone and was reported at 77.3 in July 2022, from a high of 104.6 in Mar 2019.

The Future Expectation Index (FEI) reflecting consumer expectations about economic, employment, and price conditions a year ahead was at 113.3 in July 2022. This shows that households remain optimistic for the year ahead.  

Current Perception

The increased consumer optimism in the current situation compared to a year ago is mainly due to the rise in consumer spending on essential commodities. However, current perceptions on the economic situation, employment, price level, income, and non-essential spending are still in the negative terrain.

The current perception of the general economic situation remained negative at -41.5 in July 2022 in comparison to 13.7 in Mar 2019. Consumer confidence in employment levels in India remained pessimistic in Jul'22, with 26.5% of net respondents believing that the employment situation is even less conducive in comparison to a year ago. Consumer confidence in price levels too remained in the negative territory in Jul'22, with 94.3% of net respondents believing that the current consumer price levels are higher in comparison to a year ago, while 85.9% of net respondents believed that the inflation levels are higher compared to a year ago.

The survey in July showed that consumers continued to hold back on their spending for non-essential items, a trend that has continued since September 2019.

Future Expectation

Consumer confidence was even higher for the year ahead buoyed by higher optimism for household income and employment conditions.

The expectations for the employment scenario for the year ahead dropped to 18.7 in July from 19.2 in May while that for income decreased to 43.3 in July from 44.0 in May. 7.6% of net survey respondents in July expect the overall economic situation to improve in the year ahead in comparison to only 6% holding the same view in May. Sentiments on consumer prices, inflation, and non-essential expenditure remained in the pessimistic territory.

Reference Reading

Consumer confidence is an economic indicator that measures the degree of optimism or pessimism that consumers feel about the overall state of the economy and their personal financial situation. It is a widely-used economic indicator, which serves as a barometer of the health of the economy from the perspective of the consumer. When consumer confidence in the economy is high, consumers make more purchases and save less. When confidence is low, consumers tend to save more and spend less.

The consumer confidence is measured through a bi-monthly Consumer Confidence Survey (CCS) conducted by the Reserve Bank of India (RBI). The survey obtains information on urban consumer sentiments and captures qualitative responses to questions pertaining to general economic conditions, household circumstances, income, spending, prices, etc. For each round of the survey, approx. 5400 respondents (aged 21 years and above) are canvassed in metropolitan cities such as Bangalore, Chennai, Delhi, Hyderabad, Kolkata, and Mumbai

The CCS responses are measured through two indexes:

1. Current Situation Index (CSI) captures consumer sentiment about current economic, employment, and price conditions as compared to a year ago. When the CSI shows current economic sentiment as positive, it can be viewed as a positive signal that the economy is strong or in recovery. Businesses, investors, and entrepreneurs can use this information (along with other market-specific indicators) to help gauge near-term demand for their products. Economic policymakers also consider consumer sentiment in setting targets on things like interest rates and monetary policy.
2. Future Expectation Index (FEI) captures consumer expectations about economic, employment, and price conditions a year ahead. Businesses often use it to help make better-informed decisions or adjustments in strategy such as investments in new projects or the launch of new products.