Soaring fuel prices crowd out other spends on credit cards: Report

Representational image of credit card spending | Photo: iStock

Massive rise in retail fuel prices crowded out other discretionary spends on credit cards in December, according a report by SBI Research.

Non-discretionary spends on credit cards has come back to 65 per cent of the total spends, while discretionary spending has fallen below the trend rate of 35 per cent, said the report authored by Soumya Kanti Ghosh, chief economic advisor at SBI group.

This has happened as spend on oil has crowded out in December spending on other essential items such as health, grocery and utility services which was the trend in earlier months.

Share of non-discretionary spend in December has jumped to 65 per cent, the same as before the coronavirus pandemic on account of only fuel spends, the report said adding that the finding is based on spends on SBI credit cards.

The pandemic has changed the spending habits of consumers significantly and that too within essential/ non-discretionary and non-essential/ discretionary items.

In principle, the share of discretionary spending that had reached 35 per cent of total cards spending in February 2020 had crashed to 15 per cent in April and since April, the share of discretionary spends fluctuated wildly between 15 per cent and 35 per cent.

Ghosh said the single biggest factor that has driven this change is the massive spike in inflation between April and November, which on average stood at 120 bps lower than NSO inflation numbers at 6.3 per cent.

"This has happened as spend on oil has crowded out the spending on other essential items, like health, grocery and utility services in December," said the report.

It called for "an urgent reduction in oil prices through tax rationalisation" otherwise, "non-discretionary spends will continue to get distorted and crowd out discretionary expenses".

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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