Sales of consumer products pick up marginally as inflation cools

Private consumption in India picked up marginally in the first two months of 2023 compared to the same period last year, taking into account sales of various consumer product companies. CEOs say the outlook for the coming quarters is positive as commodity prices cool and rural income picks up pace. With the government leading a major capital expenditure drive announced in the Budget, CEOs are optimistic that consumer spending would pick up in the coming months.

"There is a resurgence in demand, especially in rural, as Rabi harvesting has begun. The wheat crop is bumper this year and prices are also higher, due to which farmers are expecting a good price for their crop. The sentiment has been positive since January and we have witnessed a sequential pick-up in demand. Post Diwali, demand was impacted, but that has now recovered," said Mayank Shah, senior category head of Parle Products, a leading food company.

Data for the first two months shows higher auto sales, electricity consumption and other consumer goods sales (see chart). Falling rural and urban unemployment rate, improving consumer confidence, and falling inflation expectations should support consumption, say analysts at Care Ratings.

CEOs said in the December quarter, everything moved in the right direction by about 200 bps. Value growth moved from 6 to 8 per cent, urban growth moved from 8 to 10 per cent and rural growth moved from 3 to 5 per cent with a commensurate reduction in the negative volume across urban and rural.

Although rising prices hit consumer spending, they are now showing signs of cooling, CEOs said.

"Going forward, certainly in the first half (of calendar 2023), there is going to be a price growth albeit at lower levels, which will essentially be the carryover from last year. Therefore, the rate of inflation will be lower, but we have still not reached the stage where we can say that the commodity prices have started deflating," said Sanjiv Mehta, MD and CEO of HUL.

Mehta said that during the next two years, there will be a period of flux where the price growth will become lower, but volume growth will start kicking in only when a company passes on the benefit of lower commodity prices to the consumers. "We would need a trigger for the commodity prices to start deflating. One of the big triggers could be if the Ukraine-Russia crisis gets solved, we will certainly find commodity prices going down. However, if they remain at an inflated level, there would be some level of stress from a consumer perspective," he said.

"I believe volume growth should be better in the second half of the calendar year assuming nothing new and extraordinary comes up, and when the commodity prices remain either tamed, or start declining, we should start seeing volume growth coming back," he added.

In the December quarter, growth in private consumption growth had moderated to 2.1 per cent, a notable deceleration from 9.7 per cent reported in the Q2FY23 -- largely on the back of an unfavourable base effect. "Though the ratio of private consumption to GDP has improved to 61.6 per cent from 59.5 per cent in the previous quarter, tapering-off of pent-up demand and high inflation affecting non-essential consumption could be the reason behind lower consumption growth," Care Ratings said.