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IMPACT OF INFLATION ON CONSUMPTION PATTERN
By Debdoot Mukherjee, Forline De Fernanddo.X, Nagaraj P, Sarica.S, Dinesh Varma.M, Eveson Chella, Karin Basha, Parul Mukherjee, R.Jayanandhini, & Pavan
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 1 of 25
CONTENTS A. ACKNOWLEDGMENT ………………………………………..
3
1. INTRODUCTION 1.1.
CONTEXT………………………………………………….
4
2. OBJECTIVES……………………………………………………….
6
3. SCOPE OF THE RESEARCH……………………………………...
6
4. LIMITATIONS OF THE STUDY………………………………….
7
5. METHODOLOGY………………………………………………….
8
6. REVIEW OF LITERATURE……………………………………….
9
7. DATA ANALYSIS 7.1.
PRIMARY DATA …………………………………………
12
7.2.
INFLATION GRAPH …………………………………….
19
8. ESTIMATED IMPACT OF INFLATION CONSUMPTION PATTERN 8.1.
WHO ARE AT RISK? ..........................................................
20
9. FINDINGS AND CONCLUSIONS…………………………………
21
10. SURVEY QUESTION………………………………………………
22
11. REFERENCES………………………………………………………
24
12. APPENDIX…………………………………………………………
25
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 2 of 25
ACKNOWLEDGEMENT
We owe a great many thanks to a great many people who helped and ed us during the project. Our deepest thanks to Lecturer, Prof. G.SHARADA The Guide of the project for guiding and correcting various documents of mine with attention and care. She has taken pain to go through the project and make necessary correction as and when needed. I express my thanks to the Director of ITM Chennai, for extending her . We would also thank Our Institution and my faculty without whom this project would have been a distant reality. I also extend our heartfelt thanks to our well-wishers.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 3 of 25
1. INTRODUCTION Context
1.1.
I
n India, last two decades have recorded substantial economic growth and
improvements in livelihood among urban populations. High rate of development and urbanization results in the increase of middle class. Currently India has 31.4 million middle class households which represent 13 percent of India’s population. The percentage of middle class in the country’s total population will increase to 20.3 percent by 2015 and 37.2 percent by 2025 i.e. the number of middle class households in India is likely to more than double from the 2015-16 levels to 113.8 million households or 547 million individuals. As per the study, which uses 'household income' as the criterion, a family with an annual income between Rs 3.4 lakh to Rs 17 lakh (at 2009-10 price levels) falls in the middle class category. The middle class in low and medium income economies in the world is increasingly demanding higher value agricultural produce and due to supply constraint the price of commodity increases. Inflation is the persistent rise in the general price level of the commodity. Opinion survey in India reveals that inflation is the most important concern of the middle class people and it badly affects their standard of living and consumption. Inflation in food, by its very nature is the enemy of middle class consumers. These categories of people have to fight every day for their survival in metro cities as the cost of living is very high. Food inflation indicates higher prices of agricultural products. The primary articles contribute to 20.118% and food articles contribute to 14.337 % in Wholesale Price Index as per the WPI series 2004-05.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Inflation on Food Price Index (April 2004-December 2010)
Source: Ministry of Commerce and Industry
The increase in food prices is not homogeneous. The cereal prices (rice and wheat particularly) have increased quickly since 2006: monthly inflation rate is higher than 5% for wheat and rice (except for few months). The increase in cereal prices was higher than the increase in food prices before the beginning of 2009; after food prices have risen more quickly. In last quarter (from November 2010 to January 2011), wheat price decreased but this decrease didn't set the past increase. It is well-known that people are adversely affected by rising food prices which limit their purchasing power. In order to develop efficient policies to fight the negative impact of rising food prices, it is necessary to know which households are the most vulnerable, how food inflation affects them.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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2. OBJECTIVE Primary data To study the impact of inflation on consumption pattern.
SECONDARY DATA To explore the various issues related to food inflation and consumption pattern of the household.
To understand the degree of impact of food inflation on middle class consumers.
3. SCOPE OF THE RESEARCH
This research will help us to find out the impact of inflation on consumption pattern Rise to scope for research in it gives impact of inflation on consumption pattern particularly with respect to middle class consumers.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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This research is conducted in urban area; it can be extended further to rural areas of the country.
4. LIMITATIONS OF THE STUDY
The research is limited to the certain part of Chennai city. The data collected may not be sufficient to depict the real picture of the consumption pattern in middle class. The study is based on subjective opinions of the respondents and their participation. Due to time constraint it couldn’t possible to cover all the aspects.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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5. METHODOLOGY Primary data collection The present study is interdisciplinary (socio-economic); the data has been collected from secondary as well as from primary source. The secondary data comprises various references which already existed in the published form such as research papers, articles relating to food inflations or books and websites for the review purpose. Selection of the papers is done on the basis of their relevance and contribution to the body of knowledge. A sample size of 100 households has been drawn randomly from the population of Egmore, Nungambakkam, Navalur, Thoraipakkam, Thiruvanmiyur in Chennai. We conducted a survey among the middle class and lower class population of Chennai city and filled up the questionnaire from the head of the family through structured interviews. During the survey the class consumers were categorized on the basis of their household income.
S.No
Income Level
Class
01
More than 7 lakh/per annum
High income group
02
2.2 lakh to 6.9 lakh/per annum
Middle income group
03
Less than 2.1 lakh
Lower income group
People’s daily consumption pattern was also surveyed. And suggestion about inflation in the rate of commodities were asked to the people so as to view their different opinions.
Secondary Data Collection:
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 8 of 25
The secondary data comprises various references which already existed in the published form such as research papers, articles relating to inflation in consumer goods and also in books and websites.
6. REVIEW OF LITERATURE However number of studies has been conducted in the form of surveys and research work done on food inflation. An attempt has been made by the researcher to understand and acknowledge the work of various researchers in the field of food inflation and consumption. 1. INFLATION In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. 2. IMPACT OF INFLATION Inflation's
effects
on
an
economy
are
various
and
can
be
simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation which may discourage investment and savings, and if inflation is rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring that central banks can adjust nominal
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 9 of 25
interest rates (intended to mitigate recessions) and encouraging investment in nonmonetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Increasing trend in primary food articles:
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Source: NSSO Surveys
Decade wise average inflation
DEMAND AND SUPPLY OF MAIN COMMODITIES The food grains production has increased at the rate of 2.68 per cent per annum during 19601999 which was mainly because of productivity growth (2.44%). The share of superior cereals (rice and wheat) in total food grains production has shown an increasing trend whereas the share of coarse cereals and pulses has shown a declining trend during the last four decades. The study further reveals that the per capita cereal consumption showed a declining trend in both the rural as well as in the urban areas. The total per capita monthly consumption expenditure has increased by about six and seven times in rural and urban areas, respectively during this period. However, the expenditure on food items exhibited a declining trend during this period. The food basket was found to be diversified both in rural and urban areas with higher levels of per capita consumption expenditure on milk and milk products, fruits and vegetables and meat. A deficit of about 9 million tonnes of cereals is expected by 2009-10 but by 2029-30, India is expected to emerge as a surplus nation in cereals production. Pulses show a deficit of about 5 million tonnes in 2009-10 and quantum of deficit is expected to increase gradually to the extent of about 14 million tonnes by 2029-30. With the estimated food grains production there is no danger to food security but the estimated production can be achieved mainly through improvement in productivity. A high rate of increase in productivity calls for a priority in agricultural research system coupled with more capital investment stressing the development of new production technologies for main crops and farm products.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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7. DATA ANALYSIS 7.1.
Primary data
After collecting the primary data from the population of Chennai on the basis of questionnaire filled up by the head of the family. The following results come out. Graph 1
Type of house hold 80
74
70 60 50 40 30
Type of house hold 26
20 10 0 t family
Source: Survey data
Nuclear family
Type of house hold
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Analysis: - From this graph we can say that majority of the house hold are nuclear families. Graph-2
Occupation 1%
0%
22%
77%
Service
Source: Survey data
Business
Agriculture
Unemployed
Occupation of the Household
Analysis: - From this graph we came to know that 77% of household are service people. 22% are business people 1% is agriculture. Service household are again categorized into two type government services and private service 23% of house hold are in government sector and 54% are in private sector.
Table 1
Particular
Household assets
Assets
Percentage
Television
100%
Motorcycle/scooter
100%
Four-wheeler vehicle
55%
Owned house
100
Source: Survey data Analysis: - From this table we come to know that majority of the income group has all the main house hold assets only the
Lower income group do not afford to have
four – wheeler vehicle. IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Graph
3
What is your household income per month 3 10
20
below 5000 5000-10000 10000-20000 above 20000
67
Source: Survey data Analysis: - From the above graph we come to know that 67% of the incomes of house hold lies above 20000 per month. Whereas 20% lies between 10000-20000per month, and 10 % lies between 5000-10000per month. Income group only 3 % lies below 5000 income per month. Table2
Particular
COMMODITIES FOR DAILY CONSUMPTION
Commodities Rice Wheat Pulses Oil
Sugar
Refine Mustard Oil Palm oil Castor oil
No of Household 100 100 100 67 10 20 3
Average Quantity / Household 21 Kg 5 Kg 4 Kg
100
3 Kg
4 Lts
Source: Survey data
Analysis: - From the above Table we come to know that all the house hold income group consume all the basic commodities for their daily use.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Graph 4
90
78
80 65
70
75
62
60 50 40
30
30
35
38
40
34
Rice
25
Wheat
20
Pulses
10
Oil
0
Before Inflation
After inflation
Rice
30
38
Wheat
25
34
Pulses
65
78
Oil
62
75
Sugar
35
40
Sugar
An Average Household Spend on Monthly Commodities* (in of money)
Source: Survey data
* Rs per Kg
Graph 5
25 21
21
20 15 Rice
10 5 5 0
4
4
5 3
Wheat 4
4
Pulses
3
Oil Before Inflation
After inflation
Rice
21
21
Wheat
5
5
Pulses
4
4
Oil
4
4
Sugar
3
3
Sugar
An Average Household Spend on Monthly Commodities* (in of Kg )
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Source: Survey data
Analysis: - From the above graph no 4 & 5 we came to know that there is a huge change in price of commodity but the consumption pattern did not change. They have adapted to the change in price of commodity. The average number of house hold consume same PARTICULAR
ITEMS
CONSUME LOWER INCOME GROUP
MIDDLE INCOME GROUP
Vegetables
Daily
Daily
How frequently did an
Milk
Daily
Daily
average family consume
Fruits
Weekly
Daily
the following items?
Eggs
Weekly
Daily
Meat / Fish
Weekly
Weekly
amount of commodities that they use to consume before inflation. Table 3
Source: Survey data
Consumption Pattern of Selected Commodities
Analysis :- From the above table 3 we came to know that middle income group consume all the secondary item in a daily manner except meat and fish whereas the lower income group consume vegetable and milk in daily manner and rest in weekly manner. Graph 5
Did increase in food price affect your monthly saving 8
Yes No
92
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Source: Survey data
Change In Savings
Analysis :- From the above Graph 5 we came to know that yes there is a change in
monthly saving in all the income group.
Graph 6
Does everyone in your household get at least three meals a day throughout the year 3
Yes No
97
Source: Survey data
Household Get At Least Three Meals A Day throughout the Year
Analysis: - From the above Graph 6 we came to know that yes the average house hold gets
the three meals a day throughout the year. Graph 7
Does your household have a Ration Card 3.2
Yes No 82
Source: Survey data
Ration In House Hold
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Analysis:- From the above Graph 7 we came to know that majority of the household have
a ration card Graph 8
Do you use ration card to get monthly com
27
Yes No
73
Source: Survey data
Use of ration card
Analysis :- From the above Graph 7 we came to know that majority of the house hold do
not use the ration card as because they do not get anything from the ration. And even if they get something the quality of the commodities is not up to the mark.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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INFLATION GRAPH
7.2.
Graph 9
Inflation Graph 18 16 14 12 10 8
RATE
6 4 2
Source: - NSSO
JAN-12
NOV-11
SEPT-11
JULY-11
MAY-11
MAR-11
JAN-11
NOV-10
SEPT-10
JULY-10
MAY-10
MAR-10
JAN-10
NOV-09
SEPT-09
JULY-09
MAY-09
MAR-09
JAN-09
NOV-08
SEPT-08
JULY-08
MAY-08
MAR-08
JAN-08
0
Graph For Inflation From Jan - 2008 To Feb-2012
Analysis :- From the above graph 9 (source from NSSO website) we came to know that the inflation start from the month of Jan 2008 and it was in the peak at the period for 14 months from march 2009 to May 2010. Then after the inflation come down to 7.57% which continues till now.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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8. ESTIMATED IMPACT OF INFLATION ON CONSUMPTION PATTERN 8.1.
WHO ARE AT RISK?
After conducting the study we come to know about the consumption pattern of the house hold and from that we conclude that middle class house hold has adapt in live hood as an when price change due to inflation. There is no change in their consumption pattern but there was a vast change in saving pattern the middle class family can save more as because of the rise in commodities prices. Whereas the lower income group is concern the scenario is very bad . Due to increase in the price of basic commodities they are facing very difficult time. As there did not get basic commodities in ration and even if they get the basic commodities in ration the quality is very bad to consume. Most of the lower class people do not have ration card in there house. So in our opinion the lower income group are in risk of inflation.
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9. FINDINGS & CONCLUSION 9.1.
Findings
1. Most of the household consumes all the commodities all the commodities like rice wheat etc. but there is variation in their quantity. 2. The quantities consumed by middle class families before inflation and after inflation is the same but for the lower income group price as well as consumption pattern has changed. 3. Monthly saving gets affected for the majorities of the income group due to increase in rate of food prices. 4. Majorities of the middle income group have ration card but lower income group does not hold a ration card 5. Only 27% use ration card for purchase monthly commodities because it does not fetch them quality food .
9.2.
Conclusion
From the above information gathered we came to conclude that the consumption pattern of middle income group has not changed much even through there is inflation but there is a little change in saving pattern. Lower income group has a major problem in consumption & saving pattern due to increase in the rate of inflation.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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IMPACT OF INFLATION IN CONSUMPTION PATTEN Name of respondent: /_______________________________/ Date: /_________________ Respondent's Details Age (years): Household Details Number of household :
Gender:
Education level:
Type of household
Main occupation(s) of the household:
t family Nuclear family
Marital Status
Household assets
Service Govt
Television Motorcycle/scooter Four-wheel vehicle Owned house
Private Business Agriculture Unemployed
1. What is your household income? a. Below 5000 b. 5000 - 10,000 c. 10,000 – 20,000 d. Above 20,000 2. Can you tell us what commodities you buy for daily consumption? Rice
Wheat/atta Pulses
Pulses (type 2)
Oil (type 1)
Oil (type 2)
Sugar
Other
3. In an ordinary month, how much commodities do you normally consume?
Rice
Wheat/atta Pulses
Pulses (type 2)
Oil (type 1)
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Oil (type 2)
Sugar
Other
Page 22 of 25
4. How much amount do you spend on monthly commodities? COMMODITIES
BEFORE INFLATION Quantity Amount
AFTER INFLATION Quantity Amount
Rice Wheat/atta Pulses Pulses (type 2) Oil (type 1) Oil (type 2) Sugar
Other:-
5. How frequently did your family consume the following items? Vegetables
Milk
Fruits
Eggs
Meat or fish
Daily Weekly 6. Does everyone in your household get at least three meals a day throughout the year? Yes:-
No:-
7. Has it ever happened, during the last three months that some people in the household had to skip a meal or sleep hungry because there was not enough grain in the house? Yes: -
No:-
8. Does your household have a Ration Card? Yes:-
No:-
9. Do you use ration card to get monthly commodities? Yes:No:10. Suggestion (if any)
…………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………………………… IMPACT OF INFLATION ON CONSUMPTION PATTERN
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10. 1.
REFERENCE
Study of impact of food inflation on middle class consumer’s household consumption of milk with reference to Thane city Dr. S. B. Kishor1al and Dinesh Gabhane
2. Food and prices in India: impact of rising food prices on welfare by Nathalie Pons Centre De Sciences Humaines (Delhi) 3. Wikipedia (about inflation ) 4. NSSO website for secondary data about inflation 5. Department of Commerce and Science website (Govt of India ) 6. Family and welfare website (Govt of India ).
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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11.
1. 2. 3. 4. 5. 6. 7.
ITM NSSO FPI GDP FCI WPI I
APPENDIX
Institute for Technology And Management National Survey And Statistics Organization Food Price Index Gross Domestic Product Food Corporation Of India Wholesale Price Index Consumer Price Index
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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By Debdoot Mukherjee, Forline De Fernanddo.X, Nagaraj P, Sarica.S, Dinesh Varma.M, Eveson Chella, Karin Basha, Parul Mukherjee, R.Jayanandhini, & Pavan
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 1 of 25
CONTENTS A. ACKNOWLEDGMENT ………………………………………..
3
1. INTRODUCTION 1.1.
CONTEXT………………………………………………….
4
2. OBJECTIVES……………………………………………………….
6
3. SCOPE OF THE RESEARCH……………………………………...
6
4. LIMITATIONS OF THE STUDY………………………………….
7
5. METHODOLOGY………………………………………………….
8
6. REVIEW OF LITERATURE……………………………………….
9
7. DATA ANALYSIS 7.1.
PRIMARY DATA …………………………………………
12
7.2.
INFLATION GRAPH …………………………………….
19
8. ESTIMATED IMPACT OF INFLATION CONSUMPTION PATTERN 8.1.
WHO ARE AT RISK? ..........................................................
20
9. FINDINGS AND CONCLUSIONS…………………………………
21
10. SURVEY QUESTION………………………………………………
22
11. REFERENCES………………………………………………………
24
12. APPENDIX…………………………………………………………
25
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 2 of 25
ACKNOWLEDGEMENT
We owe a great many thanks to a great many people who helped and ed us during the project. Our deepest thanks to Lecturer, Prof. G.SHARADA The Guide of the project for guiding and correcting various documents of mine with attention and care. She has taken pain to go through the project and make necessary correction as and when needed. I express my thanks to the Director of ITM Chennai, for extending her . We would also thank Our Institution and my faculty without whom this project would have been a distant reality. I also extend our heartfelt thanks to our well-wishers.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 3 of 25
1. INTRODUCTION Context
1.1.
I
n India, last two decades have recorded substantial economic growth and
improvements in livelihood among urban populations. High rate of development and urbanization results in the increase of middle class. Currently India has 31.4 million middle class households which represent 13 percent of India’s population. The percentage of middle class in the country’s total population will increase to 20.3 percent by 2015 and 37.2 percent by 2025 i.e. the number of middle class households in India is likely to more than double from the 2015-16 levels to 113.8 million households or 547 million individuals. As per the study, which uses 'household income' as the criterion, a family with an annual income between Rs 3.4 lakh to Rs 17 lakh (at 2009-10 price levels) falls in the middle class category. The middle class in low and medium income economies in the world is increasingly demanding higher value agricultural produce and due to supply constraint the price of commodity increases. Inflation is the persistent rise in the general price level of the commodity. Opinion survey in India reveals that inflation is the most important concern of the middle class people and it badly affects their standard of living and consumption. Inflation in food, by its very nature is the enemy of middle class consumers. These categories of people have to fight every day for their survival in metro cities as the cost of living is very high. Food inflation indicates higher prices of agricultural products. The primary articles contribute to 20.118% and food articles contribute to 14.337 % in Wholesale Price Index as per the WPI series 2004-05.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 4 of 25
Inflation on Food Price Index (April 2004-December 2010)
Source: Ministry of Commerce and Industry
The increase in food prices is not homogeneous. The cereal prices (rice and wheat particularly) have increased quickly since 2006: monthly inflation rate is higher than 5% for wheat and rice (except for few months). The increase in cereal prices was higher than the increase in food prices before the beginning of 2009; after food prices have risen more quickly. In last quarter (from November 2010 to January 2011), wheat price decreased but this decrease didn't set the past increase. It is well-known that people are adversely affected by rising food prices which limit their purchasing power. In order to develop efficient policies to fight the negative impact of rising food prices, it is necessary to know which households are the most vulnerable, how food inflation affects them.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 5 of 25
2. OBJECTIVE Primary data To study the impact of inflation on consumption pattern.
SECONDARY DATA To explore the various issues related to food inflation and consumption pattern of the household.
To understand the degree of impact of food inflation on middle class consumers.
3. SCOPE OF THE RESEARCH
This research will help us to find out the impact of inflation on consumption pattern Rise to scope for research in it gives impact of inflation on consumption pattern particularly with respect to middle class consumers.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 6 of 25
This research is conducted in urban area; it can be extended further to rural areas of the country.
4. LIMITATIONS OF THE STUDY
The research is limited to the certain part of Chennai city. The data collected may not be sufficient to depict the real picture of the consumption pattern in middle class. The study is based on subjective opinions of the respondents and their participation. Due to time constraint it couldn’t possible to cover all the aspects.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 7 of 25
5. METHODOLOGY Primary data collection The present study is interdisciplinary (socio-economic); the data has been collected from secondary as well as from primary source. The secondary data comprises various references which already existed in the published form such as research papers, articles relating to food inflations or books and websites for the review purpose. Selection of the papers is done on the basis of their relevance and contribution to the body of knowledge. A sample size of 100 households has been drawn randomly from the population of Egmore, Nungambakkam, Navalur, Thoraipakkam, Thiruvanmiyur in Chennai. We conducted a survey among the middle class and lower class population of Chennai city and filled up the questionnaire from the head of the family through structured interviews. During the survey the class consumers were categorized on the basis of their household income.
S.No
Income Level
Class
01
More than 7 lakh/per annum
High income group
02
2.2 lakh to 6.9 lakh/per annum
Middle income group
03
Less than 2.1 lakh
Lower income group
People’s daily consumption pattern was also surveyed. And suggestion about inflation in the rate of commodities were asked to the people so as to view their different opinions.
Secondary Data Collection:
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 8 of 25
The secondary data comprises various references which already existed in the published form such as research papers, articles relating to inflation in consumer goods and also in books and websites.
6. REVIEW OF LITERATURE However number of studies has been conducted in the form of surveys and research work done on food inflation. An attempt has been made by the researcher to understand and acknowledge the work of various researchers in the field of food inflation and consumption. 1. INFLATION In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. 2. IMPACT OF INFLATION Inflation's
effects
on
an
economy
are
various
and
can
be
simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation which may discourage investment and savings, and if inflation is rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring that central banks can adjust nominal
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Page 9 of 25
interest rates (intended to mitigate recessions) and encouraging investment in nonmonetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Increasing trend in primary food articles:
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Source: NSSO Surveys
Decade wise average inflation
DEMAND AND SUPPLY OF MAIN COMMODITIES The food grains production has increased at the rate of 2.68 per cent per annum during 19601999 which was mainly because of productivity growth (2.44%). The share of superior cereals (rice and wheat) in total food grains production has shown an increasing trend whereas the share of coarse cereals and pulses has shown a declining trend during the last four decades. The study further reveals that the per capita cereal consumption showed a declining trend in both the rural as well as in the urban areas. The total per capita monthly consumption expenditure has increased by about six and seven times in rural and urban areas, respectively during this period. However, the expenditure on food items exhibited a declining trend during this period. The food basket was found to be diversified both in rural and urban areas with higher levels of per capita consumption expenditure on milk and milk products, fruits and vegetables and meat. A deficit of about 9 million tonnes of cereals is expected by 2009-10 but by 2029-30, India is expected to emerge as a surplus nation in cereals production. Pulses show a deficit of about 5 million tonnes in 2009-10 and quantum of deficit is expected to increase gradually to the extent of about 14 million tonnes by 2029-30. With the estimated food grains production there is no danger to food security but the estimated production can be achieved mainly through improvement in productivity. A high rate of increase in productivity calls for a priority in agricultural research system coupled with more capital investment stressing the development of new production technologies for main crops and farm products.
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7. DATA ANALYSIS 7.1.
Primary data
After collecting the primary data from the population of Chennai on the basis of questionnaire filled up by the head of the family. The following results come out. Graph 1
Type of house hold 80
74
70 60 50 40 30
Type of house hold 26
20 10 0 t family
Source: Survey data
Nuclear family
Type of house hold
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Analysis: - From this graph we can say that majority of the house hold are nuclear families. Graph-2
Occupation 1%
0%
22%
77%
Service
Source: Survey data
Business
Agriculture
Unemployed
Occupation of the Household
Analysis: - From this graph we came to know that 77% of household are service people. 22% are business people 1% is agriculture. Service household are again categorized into two type government services and private service 23% of house hold are in government sector and 54% are in private sector.
Table 1
Particular
Household assets
Assets
Percentage
Television
100%
Motorcycle/scooter
100%
Four-wheeler vehicle
55%
Owned house
100
Source: Survey data Analysis: - From this table we come to know that majority of the income group has all the main house hold assets only the
Lower income group do not afford to have
four – wheeler vehicle. IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Graph
3
What is your household income per month 3 10
20
below 5000 5000-10000 10000-20000 above 20000
67
Source: Survey data Analysis: - From the above graph we come to know that 67% of the incomes of house hold lies above 20000 per month. Whereas 20% lies between 10000-20000per month, and 10 % lies between 5000-10000per month. Income group only 3 % lies below 5000 income per month. Table2
Particular
COMMODITIES FOR DAILY CONSUMPTION
Commodities Rice Wheat Pulses Oil
Sugar
Refine Mustard Oil Palm oil Castor oil
No of Household 100 100 100 67 10 20 3
Average Quantity / Household 21 Kg 5 Kg 4 Kg
100
3 Kg
4 Lts
Source: Survey data
Analysis: - From the above Table we come to know that all the house hold income group consume all the basic commodities for their daily use.
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Graph 4
90
78
80 65
70
75
62
60 50 40
30
30
35
38
40
34
Rice
25
Wheat
20
Pulses
10
Oil
0
Before Inflation
After inflation
Rice
30
38
Wheat
25
34
Pulses
65
78
Oil
62
75
Sugar
35
40
Sugar
An Average Household Spend on Monthly Commodities* (in of money)
Source: Survey data
* Rs per Kg
Graph 5
25 21
21
20 15 Rice
10 5 5 0
4
4
5 3
Wheat 4
4
Pulses
3
Oil Before Inflation
After inflation
Rice
21
21
Wheat
5
5
Pulses
4
4
Oil
4
4
Sugar
3
3
Sugar
An Average Household Spend on Monthly Commodities* (in of Kg )
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Source: Survey data
Analysis: - From the above graph no 4 & 5 we came to know that there is a huge change in price of commodity but the consumption pattern did not change. They have adapted to the change in price of commodity. The average number of house hold consume same PARTICULAR
ITEMS
CONSUME LOWER INCOME GROUP
MIDDLE INCOME GROUP
Vegetables
Daily
Daily
How frequently did an
Milk
Daily
Daily
average family consume
Fruits
Weekly
Daily
the following items?
Eggs
Weekly
Daily
Meat / Fish
Weekly
Weekly
amount of commodities that they use to consume before inflation. Table 3
Source: Survey data
Consumption Pattern of Selected Commodities
Analysis :- From the above table 3 we came to know that middle income group consume all the secondary item in a daily manner except meat and fish whereas the lower income group consume vegetable and milk in daily manner and rest in weekly manner. Graph 5
Did increase in food price affect your monthly saving 8
Yes No
92
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Source: Survey data
Change In Savings
Analysis :- From the above Graph 5 we came to know that yes there is a change in
monthly saving in all the income group.
Graph 6
Does everyone in your household get at least three meals a day throughout the year 3
Yes No
97
Source: Survey data
Household Get At Least Three Meals A Day throughout the Year
Analysis: - From the above Graph 6 we came to know that yes the average house hold gets
the three meals a day throughout the year. Graph 7
Does your household have a Ration Card 3.2
Yes No 82
Source: Survey data
Ration In House Hold
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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Analysis:- From the above Graph 7 we came to know that majority of the household have
a ration card Graph 8
Do you use ration card to get monthly com
27
Yes No
73
Source: Survey data
Use of ration card
Analysis :- From the above Graph 7 we came to know that majority of the house hold do
not use the ration card as because they do not get anything from the ration. And even if they get something the quality of the commodities is not up to the mark.
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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INFLATION GRAPH
7.2.
Graph 9
Inflation Graph 18 16 14 12 10 8
RATE
6 4 2
Source: - NSSO
JAN-12
NOV-11
SEPT-11
JULY-11
MAY-11
MAR-11
JAN-11
NOV-10
SEPT-10
JULY-10
MAY-10
MAR-10
JAN-10
NOV-09
SEPT-09
JULY-09
MAY-09
MAR-09
JAN-09
NOV-08
SEPT-08
JULY-08
MAY-08
MAR-08
JAN-08
0
Graph For Inflation From Jan - 2008 To Feb-2012
Analysis :- From the above graph 9 (source from NSSO website) we came to know that the inflation start from the month of Jan 2008 and it was in the peak at the period for 14 months from march 2009 to May 2010. Then after the inflation come down to 7.57% which continues till now.
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8. ESTIMATED IMPACT OF INFLATION ON CONSUMPTION PATTERN 8.1.
WHO ARE AT RISK?
After conducting the study we come to know about the consumption pattern of the house hold and from that we conclude that middle class house hold has adapt in live hood as an when price change due to inflation. There is no change in their consumption pattern but there was a vast change in saving pattern the middle class family can save more as because of the rise in commodities prices. Whereas the lower income group is concern the scenario is very bad . Due to increase in the price of basic commodities they are facing very difficult time. As there did not get basic commodities in ration and even if they get the basic commodities in ration the quality is very bad to consume. Most of the lower class people do not have ration card in there house. So in our opinion the lower income group are in risk of inflation.
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9. FINDINGS & CONCLUSION 9.1.
Findings
1. Most of the household consumes all the commodities all the commodities like rice wheat etc. but there is variation in their quantity. 2. The quantities consumed by middle class families before inflation and after inflation is the same but for the lower income group price as well as consumption pattern has changed. 3. Monthly saving gets affected for the majorities of the income group due to increase in rate of food prices. 4. Majorities of the middle income group have ration card but lower income group does not hold a ration card 5. Only 27% use ration card for purchase monthly commodities because it does not fetch them quality food .
9.2.
Conclusion
From the above information gathered we came to conclude that the consumption pattern of middle income group has not changed much even through there is inflation but there is a little change in saving pattern. Lower income group has a major problem in consumption & saving pattern due to increase in the rate of inflation.
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IMPACT OF INFLATION IN CONSUMPTION PATTEN Name of respondent: /_______________________________/ Date: /_________________ Respondent's Details Age (years): Household Details Number of household :
Gender:
Education level:
Type of household
Main occupation(s) of the household:
t family Nuclear family
Marital Status
Household assets
Service Govt
Television Motorcycle/scooter Four-wheel vehicle Owned house
Private Business Agriculture Unemployed
1. What is your household income? a. Below 5000 b. 5000 - 10,000 c. 10,000 – 20,000 d. Above 20,000 2. Can you tell us what commodities you buy for daily consumption? Rice
Wheat/atta Pulses
Pulses (type 2)
Oil (type 1)
Oil (type 2)
Sugar
Other
3. In an ordinary month, how much commodities do you normally consume?
Rice
Wheat/atta Pulses
Pulses (type 2)
Oil (type 1)
IMPACT OF INFLATION ON CONSUMPTION PATTERN
Oil (type 2)
Sugar
Other
Page 22 of 25
4. How much amount do you spend on monthly commodities? COMMODITIES
BEFORE INFLATION Quantity Amount
AFTER INFLATION Quantity Amount
Rice Wheat/atta Pulses Pulses (type 2) Oil (type 1) Oil (type 2) Sugar
Other:-
5. How frequently did your family consume the following items? Vegetables
Milk
Fruits
Eggs
Meat or fish
Daily Weekly 6. Does everyone in your household get at least three meals a day throughout the year? Yes:-
No:-
7. Has it ever happened, during the last three months that some people in the household had to skip a meal or sleep hungry because there was not enough grain in the house? Yes: -
No:-
8. Does your household have a Ration Card? Yes:-
No:-
9. Do you use ration card to get monthly commodities? Yes:No:10. Suggestion (if any)
…………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………………………… IMPACT OF INFLATION ON CONSUMPTION PATTERN
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10. 1.
REFERENCE
Study of impact of food inflation on middle class consumer’s household consumption of milk with reference to Thane city Dr. S. B. Kishor1al and Dinesh Gabhane
2. Food and prices in India: impact of rising food prices on welfare by Nathalie Pons Centre De Sciences Humaines (Delhi) 3. Wikipedia (about inflation ) 4. NSSO website for secondary data about inflation 5. Department of Commerce and Science website (Govt of India ) 6. Family and welfare website (Govt of India ).
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11.
1. 2. 3. 4. 5. 6. 7.
ITM NSSO FPI GDP FCI WPI I
APPENDIX
Institute for Technology And Management National Survey And Statistics Organization Food Price Index Gross Domestic Product Food Corporation Of India Wholesale Price Index Consumer Price Index
IMPACT OF INFLATION ON CONSUMPTION PATTERN
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