When food pinches, luxuries can wait.
The non-stop spurt in the prices of essential commodities seen in recent weeks could force people to defer the purchase of items other than basic commodities like food as their disposable incomes dip in the wake of high inflation that erodes purchasing power.
Economists said on Friday after the wholesale price-based inflation touched a 41-month high of 7.4 percent that unlike earlier occasions, the current rise in prices has been primarily driven by high prices of food articles whose consumption cannot be deferred or easily reduced. That means that much less money to spend on other things.
“The high prices of food articles mean that people spend a larger proportion of their income on food items which reduces disposable incomes,” said DK Joshi, principal economist with credit rating and economic consulting firm Crisil.
Analysts said a fallout could be lower demand for manufactured items such as consumer durables and automobiles, but added it was not a cause for panic as yet.
Food articles constitute about 48 per cent of personal household consumption basket. “It is upto the consumer how he responds as it is a question of trade-off between cheaper food alternatives and lower disposable incomes,” said TK Bhaumik, chief economist at Reliance Industries Limited.
While the more affluent can still keep up secondary purchases, the lower income strata will have a significantly high portion of its budgets going towards basic items.
“The high income group would not be affected as much as people living in the margins who spend about 90 per cent of their income on food,” said Joshi.