Despite the fact that Indian consumers’ spending or intentions to spend did not get impacted by demonetisation in Q3, 2016-17; a come off has been seen in January 2017. Orbis Economics’s proprietary measure –the Consumer Conditions Measure (CCM) - slowed down to 101.4 in January 2017, the slowest in five months.
A level for the CCM that is above 100 indicates improved consumer conditions from the average conditions during the last year and vice-versa. The level of 100 indicates unchanged conditions. With the CCM coming in above 100 during January 2017 as well, the environment has been more conducive to consumer spending consecutively for the last 5 months, and for 6 of the last 10 months for which 2016-17 data is available.
The CCM is a good leading indicator for overall economic Private Final Consumption Expenditure (PFCE) in the economy, which was starkly evident from the Q3, 2016-17 numbers. Despite the fact that there had been a hit to consumer spending in the quarter due to demonetisation, the CCM had shown a spike. This was further corroborated by the sharp increase in PFCE growth to over 10% during the quarter. Clearly, the boost to spending on account of festive demand more than made up for the hit due to demonetisation. A strong agricultural season pushed up rural demand, which undoubtedly led to the strong consumption spending showing.
However, lagged impacts of the policy measure cannot be discounted. This is evident from the come off in January 2017 numbers. For now, though, is the fact that we need to wait and watch for two months’ data to fully know where consumer spending is going.
The CCM is a blended measure from a number of consumer related indicators, which suggest the consumers’ intentions to purchase, actual purchases as well as price conditions. At present the we are running the beta measure of the CCM.