The Indian consumer's response to inflation

A familiar challenge

Inflation is not new to India, where consumers have perennially endured high inflation, going up to double digits in the last decade. The present phase of around 7% inflation is moderate by contrast. Indians, though aware of the problems posed by inflation, are less worried when compared to their western counterparts. Inflation features among the top three worries for 45% of Britons, way ahead of issues like the Covid-19 pandemic and the war in Ukraine. In comparison, it is among top three worries for 35% of Indians - on par with the Covid pandemic. Less affluent consumers and those with family responsibilities in India are understandably more worried.

Living with inflation

Decades of persistent inflation has provided Indian consumers with a good understanding of the phenomenon. Consumers talk of a hike in fuel prices being an indicator of a high inflationary period, aware that this causes a cascading effect with prices increasing all round. They are also aware that beyond a price hike there are other ways in which inflation becomes evident in branded products e.g. shrinkflation - when pack sizes are brought down to maintain price points - or when the quality of products declines.

The impact beyond expenditure is also spoken of, with consumers reporting a shift in their investment patterns in response to inflation – moving funds away from bank deposits due to dropping real interest rates to assets like gold and real estate – believed to be counter-inflationary. The extended experience with inflation also means that a typical Indian deploys a multi-pronged approach to managing expenditure – from cutbacks, postponement, downtrading and bargain hunting – depending on the category of product or service

Impact of the pandemic

But this is also not just a routine phase of inflation for India. For the middle- and lower-income households, this phase of inflation coming soon after the devastating waves of pandemic has added to the challenge of dealing with it. The erosion of savings and loss of income in the recent years has not only depleted the economic security of households, but it has also made the need for savings and economic security more salient than ever before.

Strong aspirations

India has experienced high rates of economic growth in recent decades despite high and persistent inflation. This is shaping the attitudes of consumers who no longer look at living within their means as an effective strategy for dealing with inflation. Indian consumers have strong aspirations for improving their economic condition – and are interested in getting ahead of inflation rather than just coping with it. Cutting back and optimizing within available income is seen as regressive and, in some ways, unacceptable.

The quest is for enhancing income through finding newer streams of income – second job, side-hacks, multiple working members of the family or higher stream of income- upskilling and better investment. Thus, despite higher economic challenges, a confidence in the future and strong aspirations sustained by recent decades of economic growth is helping Indians adopt a more positive response to the present inflationary period.

Table of content

1. Introduction
2. Feeling the pressure: Context
3. Understanding human psychology during the polycrisis
4. Has disruption become the new normal?
5. The Indian consumer's response to inflation
6. Turkey: Re-designing adaptation in the shadow of hyperinflation
7. Brazil: Downsizing VS price rises- making the right choice
8. Malaysia: Between money well spent and life well lived
9. Understanding Argentina
10.  France: The end of recklessness