Inflation pressures strike affordable segments: Report

In economic terms, when costs of goods rise but incomes are stagnant, there is reduction in purchasing power of individuals

Income inequality in India is becoming more visible across sectors as consumers continue to grapple with inflation. There have been fewer entrants in the entry-level segment while the luxury segment continues to have a range of new and diversified products, according to a Mint analysis. In terms of sales, item volumes across sectors in the entry tier have fallen while the same in the luxury segment have risen, the report said.

Speaking in economic terms, when the costs of goods rise but incomes remain stagnant, there is a reduction in the purchasing power of individuals. This directly impacts the lower- and middle-income groups. High-income groups, however, have more cushion against rising prices and can afford goods even when they are expensive.

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On the production side, supply issues with manufacturing goods such as chips and semiconductors have made newer entrants more expensive and shrunk the affordable segment. On the consumption side, households are keeping expenses largely in check.

Top end takes off

Sales improved in the high-end categories including luxury cars while sales in the budget-friendly segments declined, said the Mint report. The sales of cars priced over Rs 10 lakh grew by 38 per cent in FY22 while the small car segment saw a 7 per cent growth year-on-year, according to CRISIL data. This could be because of a tangential shift in the auto sector towards SUVs and bigger cars over the past two to three years, wherein consumers were willing to spend more on bigger cars.

Likewise, the sales of premium phones saw a sharp 83 per cent uptick in the June quarter from a year ago, said the report, citing International Data Corporation information. Meanwhile, the market share for affordable and entry-level phones declined by 5 percentage points from a year ago.

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"Ideally, all segments should de-grow if the market is shrinking and vice versa, but what we’re seeing now is an unusual trend," analyst Prachir Singh, of Counterpoint Research told the publication.

Rising inflation and an increase in fuel prices mean that lower- and middle-income groups now spend more on essential items. "We’ve seen demand in the affordable segment drop by 25 per cent in the mobile phone space," Vikas Jain, Micromax co-founder, told Mint. "That is why companies are sitting on inventory pile-ups."

According to experts, since the affordable segment has shrunk, brands will have to resort to extreme discounts to clear inventory pile-ups. However, unless the overall economic pressure eases, the inequality between the segments is likely to continue.