Inflation once again saw a dip as new figures of the Consumer Price Index (CPI) and Wholesale Price Index (WPI) came in recently. The CPI which is one of the main measures on which inflation is measured, saw a drop in 3.66% in August from 3.69% the previous month. In July too the CPI was revised to 3.69% from the first estimate of 3.78%. The WPI on the other hand in August was at one of its lowest point in nearly 40 years at minus 4.95%. The WPI has been in the negative for nearly 12 months.
With the lower inflation rate many industry heads expect this to lead to the Reserve Bank of India (RBI) to cut the interest rates by at least 25 basis points, which currently stand at 7.25%. This call for rate cuts is in order to lower the price of borrowing and thereby allowing more liquidity of funds into some cash strapped industries.
However, whether or not the RBI chooses to cut interest rates, the lower inflation comes as good news to many key consumer driven sectors as it leaves more money for discretionary spends in the hands of consumers, especially during the festive period. Though the festive period has already started from Onam, the peak of the festive period is during Dussehra and Diwali in October and November. It is a time when a maximum of consumer spends are made towards consumer durables, automobiles, retail and clothing, mobile handset manufacturers, furnishings, etc.
These are consequently also some of the highest spending brand categories during the festive period. For instance the consumer electronics and durables festive ad spends during last year was expected to be one of the highest at Rs.1,000 crore. The automobile ad spends during the same time were expected to be around Rs.500 crore last year. Ecommerce too saw its ad spends reach Rs.1,000 crore. Retail sector ad spends last year were expected to cross over Rs.200 crore till Diwali. Similarly, mobile handset companies spend a large amount on advertising during this season.
While a few months earlier news of inflation and consumer sentiment being down would have lead to many such key sectors reducing their ad spends, the news of inflation cooling down and prices of essentials reducing would be good news for these sectors before the festive period. This could possibly see many of these sectors putting more spends towards marketing in order to get a larger pie of the sales during the period. If interest rates are further cut by the RBI could also see the BFSI sectors ad spends on the consumer lending products going up during this period.
This year during the festive period the ecommerce industry is expected to see the highest in ad spends of Rs.1,300 crore and according to some media report even upto Rs.2,000 crore. Automobile ad spends are expected to be Rs.2,400 crore during the second half of the year out of which a major portion will be during the festive period. Similarly, other high festive spending categories such as consumer electronics, mobile handset manufacturers, retail and clothing, etc. could see much higher ad spends than last year.
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