Consumer confidence down 2.1% on the year
The MNI India Consumer Sentiment Indicator fell by 2% to 119.6 in May from 122.1 in April as sentiment across all components declined, led by a fall in Durable Buying Conditions.
It is now one year since Prime Minister Narendra Modi was elected and over that period confidence has declined 2.1%, with respondents' hopes for economic conditions over the long-term dented significantly and only the Durable Buying Conditions indicator managing to rise, albeit slightly. In contrast, the survey shows that optimism on current business conditions has increased by 8% over the same period, something which hasn't been reflected in the headline confidence measure. In spite of the rise in current business sentiment, consumers have revised lower their expectations for the future over the past year.
The continued subdued level of consumer confidence, combined with the weakness in our sister India Business Survey, supports the case for a further cut in the benchmark interest rate at the RBI's upcoming monetary policy review on June 2.
The across the board decline in sentiment between April and May was driven by a 3.3% fall in Durable Buying Conditions, following a significant increase in the previous month. The two business conditions components which measure expectations for one and five years declined by a smaller magnitude, although the latter fell to the lowest since September 2013.
Both Current and Expected Personal Finances measures held up better but were still down on the month with the latter declining to the lowest since September 2013. The Current Personal Finances Indicator was up nearly 4% since the recent trough in January, no doubt helped by the recent cuts in interest rates. We have as yet seen little impact on other indicators in the report over the same period.
The latest results continue to show that the period of very low inflation may be coming to an end, with inflation expectations up and satisfaction with current prices down for the third consecutive month.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, "While confidence ebbed a little in May there is some evidence to suggest the two rate cuts from the RBI have helped to stabilise sentiment somewhat since the start of the year. Notably, current measures on personal finances and business conditions have perked up since January. While evidence this month further supports the view that we may have seen the trough in inflation, a further cut in official interest rates to support growth looks justified on June 2."
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