Consumption trends shift with higher food expenses

The Household Consumption Expenditure Survey (HCES) 2023-24 reveals a rise in food’s share in household spending, reflecting high inflation and reduced discretionary expenses.

Rural consumption showed resilience, narrowing the urban-rural gap, while inequality declined as spending among poorer households surged. These findings will influence the updated Consumer Price Index (CPI) series, expected in 2026, with a likely reduction in food weights.

In rural areas, food expenditure climbed to 48.43% from 47.47% in 2022-23, while urban areas saw a rise to 40.31% from 39.7%. Cereals also claimed a larger share, increasing to 7.6% in rural and 4.8% in urban areas. This uptick reduced discretionary spending on non-food items like durables, education, and medicines. Rural non-food expenses dipped to 52.96%, and urban spending slipped to 60.32%.

Economists linked the trend to high food inflation, averaging 8.3% in 2023-24 versus 6% the previous year, alongside modest real-wage growth. However, rural consumption showed resilience, with the urban-rural MPCE gap narrowing to 70%, down from 84% in 2011-12.

India’s average MPCE rose by 10% in rural areas to Rs 4,247 (US$ 51.2) and by 8% in urban areas to Rs 7,078 (US$ 85.3). Sikkim recorded the highest MPCE (rural – Rs 9,377 (US$ 113.1), urban – Rs 13,927 (US$ 167.9)), while Chhattisgarh reported the lowest (rural – Rs 2,739 (US$ 33.0), urban – Rs 4,927 (US$ 59.4)).

Consumption inequality improved as the Gini coefficient dropped to 0.24 in rural and 0.28 in urban areas. Spending among the poorest rural households surged by 22.1%, contrasting with a 3.5% dip among the wealthiest. Urban trends mirrored this, with an 18.7% rise among the poorest and a 2.5% decline among the richest.

The HCES findings will influence the updated Consumer Price Index (CPI) series, expected by 2026, potentially reducing the weight of food items in the inflation index by over 5 percentage points.