After seeing a persistent recovery for almost two years, consumer confidence has dipped in July with improvement in respondents’ sentiment on income and spending being off-set by higher pessimism on general economic and employment situation.

The Current Situations Index (CSI) dipped to 88.1 from 88.5 in May 2023, as per the July 2023 round of RBI’s Forward Looking Surveys.

Household perception of current inflation inched up 10 bps to 8.9 per cent but expectations of both three months and one year ahead inflation moderated by 10 bps each to 10.0 per cent and 10.3 per cent, respectively.

However, sentiments on current income improved and moved to optimistic zone for the first time in four years with future earnings expectations remaining buoyant.

Household expectations

Going forward, households hope for improvements in general economic, employment and income conditions. The future expectation index (FEI) remained in optimistic terrain and recorded a marginal rise to 116.6 from 116.3.

“General inflation expectation remained elevated in anticipation of firmer food prices over the next three months even as a lower share of respondents expected rise in inflation for other product groups,” the survey said adding that over a pressure from housing also remained a concern.

The Consumer Price Index-based inflation has been revised up 70 bps for Q2 FY24 at 5.6 per cent while the headline inflation is estimated to be at 5.2 per cent for FY24 and 4.7 per cent for FY25.

RBI has revised the GDP growth forecast for FY24 up by 10 bps to 6.1 per cent. It is expected to grow by 6.5 per cent in FY25, with forecasters assigning the highest probability to 6.0-6.4 per cent for both FY24 and FY25.

Bankers too continued to have an optimistic loan demand assessment, with expectations of loan demand picking up in Q2 FY24 onwards led by easing in loan terms and conditions.

Manufacturing and infra

Capacity utilisation in the manufacturing sector increased for the third successive quarter to 76.3 per cent in Q4 FY23 from 74.3 per cent in the previous quarter. Seasonally adjusted CU for Q4 FY23 was stable at 74.1 per cent.

Even so, and despite raw material cost pressures easing, manufacturing companies reported somewhat slower improvement in demand conditions during Q1 FY24 due to sustained pressures from rising salary outgo and elevated cost of finance.

With overall business sentiment being positive, manufacturers indicated expectations of an uptick in selling price and a rise in their profit margin Q2 FY24 onwards, also aided by further softening in raw material prices.

The business expectations index (BEI) improved to 132.5 for Q2 FY24 from 126.4 in the previous quarter.

Infrastructure companies too remained positive on the overall business situation as well as their turnover led by easing in input and wage cost pressures, although optimism waned marginally for overall business situation.

While companies saw lower growth in selling prices and moderation in their profit margin in Q1 FY24, they expect demand parameters to improve during Q2 also leading to a better job landscape in terms of both full-time and part-time employment.

“Higher cost pressures are expected to stem from wage cost and finance cost in Q2 FY24, respondents expect to pass on the increase by increasing selling prices and remain optimistic on profit margins,” the survey said.