Middle class Indians fear inflation

06 April 2011

MUMBAI: High inflation is forcing middle income Indian families to make big reductions in their discretionary spending, according to a new report.

Based on a survey of nearly 2,000 people, trade body ASSOCHAM found the middle income group (MIG) has cut as much as 65% from its expenditure on entertainment, shopping and eating out over the last 12 months, with many using the spare funds to pay for increasingly costly basics.

Almost half of the middle class Indians polled said they either avoid going shopping or only buy "those things that are absolutely needed".

Meanwhile, three in four have "cut back" on their "everyday expenses", and one in three now exclusively purchase "necessities".

Within different categories, 69% of the panel had reduced spending on eating out, while 55% reined in their clothing costs and 54% trimmed their outlay on holidays.

High inflation, partly driven by rising energy prices, has been felt by consumers around the world over recent months.

India has been hit particularly hard due to its strong economic growth - generally, rising incomes lead to increased demand for goods and services, and, consequently, higher prices.

This rapid price growth - India's CPI reached 8.3% in February 2011 - has not been slowed by hawkish monetary policy, with the central bank increasing interest rates on eight separate occasions in the last year.

According to the ASSOCHAM report, there is a big difference between how the middle classes and the High Income Group (HIG) are dealing with inflation.

"Double digit inflation and higher cost of money virtually unaffected HIG group in the period as it did not imbalance their earnings and thereby spending," ASSOCHAM said.

"However, MIG and classes below it regulated their shopping, eating and entertainment habits by tightening their belt to make up for rising prices."

Data sourced from MIG/BBC; additional content by Warc staff