Consumer spending dipped during the second quarter of this year as inflation hit 9.8% in July, despite an annual average inflation of approximately 6%, according to a report from the research firm, ACNielsen.

“Most indicators show that at least in the short term, consumers are cutting down on spending due to increasing costs and concerns about the need to pay off debts. Increasing borrowing costs as a result of a spike in interest rates and increased prices of imported goods due to depreciation of the rupee seem to be the key contributing factors,” the report stated.

The report noted that spending on branded fast moving consumer goods (FMCGs) in general trade declined to 3% year-to-date, as compared with 19% last year. It added that urban areas in particular saw a marked dip on spending, likely due to sharp increases in the cost of fuel and utilities.

Debt, the state of the economy and the education and welfare of children were the primary concerns amongst those polled by Nielsen during the quarter, with many choosing to invest their disposable income once essential living expenses were covered, into savings or their children’s savings.

Notably, the second most common response by those polled was that they had no disposable incomes left to spend once essential living expenses were covered.

“In the event that the value of the rupee remains stable, and global demand for commodities remains as it stands now, costs of imported raw materials for locally manufactured FMCGs should stabilize resulting in a more positive consumer outlook. However, if the rupee depreciates further, another round of belt tightening may prevail,” the report stated.

“While the short-term picture is one of apprehension, corrective action has been taken to prevent overheating of the economy and with the gross domestic product expected to grow at above 6% in 2012, the turnaround should occur sooner rather than later,” it added.

(CF)