Despite a recent decline in inflation, the decrease in people’s purchasing power will not be enough to offset the drop in consumption. While some companies are lowering prices to boost sales, overall spending is expected to drop by 8% this year, with real wages in the formal private sector projected to fall by an average of 6.1%. According to estimates by Abeceb, disposable income and consumption may not fully recover until 2025, with sales in supermarkets, restaurants, and household appliances predicted to see modest growth in the coming year.
The decline in purchasing power is due to significant corrections in the relative prices of essential goods and services such as gas, electricity, water, public transport, and fuel. These items have increased at rates much higher than inflation. For example, while inflation was 290% as of March, prices for items like electricity and food increased by even higher percentages. This has left consumers with less money available for other purchases.
The loss of real wages disguised by a 6.1% decline actually represents a greater reduction in purchasing power when factored into rising costs of essential goods and services. This leads to a significant decrease in disposable income and subsequently affects consumer spending. To adapt, consumers are turning to local stores, lower-priced brands and discounts while companies are focusing on cost optimization and offering more affordable options to attract budget-conscious consumers.
In March, retail sales experienced a 12.6% drop, car registrations fell by 35.1%, and motorcycle registrations declined by 43.3%. The impact of reduced purchasing power is evident across various sectors with both consumers and businesses adjusting their strategies to navigate the challenging economic conditions despite these challenges; there is hope for a recovery in disposable income and consumption in the coming years as the market adjusts to changing economic landscape
