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Is your household budget in danger?

Inflation is affecting Preeti Parekh who has already postponed a vacation this year.

business Updated: Jun 20, 2008 21:28 IST
Suman Layak

Inflation is affecting Preeti Parekh who has already postponed a vacation this year. Sitting in her flat in Juhu, Mumbai, Parekh explained how she spent more than Rs 1500 to buy petrol today – for what she could buy with Rs 1300 a few days back. “No more long drives for me now,” she said.

The 53-year old Parekh lives in her one-bedroom flat with her 22-year old daughter who is eager to begin her MBA course. The family manages on earnings from investments made by Parekh’s late husband. Therefore, the household budget going for a toss is of serious concern. “A box of mangoes last week was at Rs 150 and this week the same guy is charging me Rs 250. Now we are trying to cut down on our expenses.”

“The unexpectedly high Inflation figure came as an unpleasant surprise for market participants and economists alike,” said Hitesh Agarwal, the head of research of Angel Broking.

Being a Gujarati family, the Parekhs buy household groceries once a year when the prices are lowest. Parekh buys 100 kilograms of wheat and uses an electric chakki at home to grind it to flour. She buys 25 kilos of tuar daal at a time. It insulates the family from many price shocks – and teaches all of us a lesson.

“However, vegetables have to be bought fresh. And when guests come you cannot cut down. You may cut down on clothes that you buy, but now the festival season is coming up and expenses will go up again. The confidence is gone and I feel like keeping cash handy – that is why no vacation this year,” Parekh said.

Parekh is not alone in her worries and experts record the situation too. “Continued double-digit inflation is expected to have a huge psychological impact on consumers, further fuelling inflationary expectations. Due to the social implications, we believe it will increasingly become a major political issue,” said Tushar Poddar, Vice President Asia Economic Research, Goldman Sachs.

Preeti Parekh has not made any changes in her portfolio and is disappointed with the prospect of equities. We sought the advise of a personal financial planner Dr D Sundararajan for this kind of a scenario. He said: “We are recommending 5-10 per cent exposure to a exchange traded gold fund. Also we recommend a gradual increase in exposure to debt funds, though without long-term commitment as some rate increases are likely. Equity investments, if for the long term is okay but only through systematic investment plans.”