Decline in Inflation Expectations Provide Support for Rate Cut
The MNI India Consumer Sentiment Indicator rose slightly to 119.1 in August from 118.6 in July, marking the first improvement in four months.
Consumer sentiment among Indian households has remained stable since the start of the year, but the trend since May 2014, when the Modi government came to power, has been one of gradual decline.
Still, the August survey provided a tentative sign that respondents were increasingly convinced that government policy was starting to have an impact and will continue to help the business environment. Consumers revised up their perception of the current business situation and their short-term expectations for it, with a growing number of respondents citing government policy reforms. The Current Business Conditions Indicator rose to 111.0, surpassing the outturn in August 2014 while the indicator for Business Conditions in One Year was 2.5% above the level seen at the start of the year.
Consequently respondents were more optimistic about the job market over the next 12 months, with the Employment Outlook Indicator rising to the highest level since May 2013.
Consumers reported a small improvement in their personal financial situation and in their willingness to purchase big-ticket items probably due to a decline in retail price inflation. There was also a rise in satisfaction with the current level of prices in August and a reduction in inflation expectations for the next 12 months. A growing proportion of consumers anticipated prices will rise by 5%; a change in attitude from previous months when respondents had much higher inflation expectations.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, "The RBI's more accommodative policy stance has helped to stabilise consumer sentiment following the trend decline in 2014. While there are a few positives on the outlook for employment and business conditions, confidence is still bumping along at a lower level compared with last year."
"The RBI has already signalled that it could lower interest rates further and the relatively subdued level of consumer confidence, continued weak business confidence in our sister business survey, and the surprisingly low level of inflation support the case for another cut this month."
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