The erosion of purchasing power due to repeated inflation shocks and persisting price pressures is starkly reflected in weakening sales growth of listed non-financial non-government corporations, said RBI officials in the latest monthly bulletin.

The outlook of corporations on demand conditions also remains subdued as no let-up in the incidence of price shocks seems to be in sight; they will increasingly be inclined to pass on input costs to selling prices, the officials noted in the article “State of the Economy”.

“Consequently, there is no robust capacity creation by investing in fixed assets. Instead, corporations are churning and utilising existing capacity to meet the inflation-dented consumer demand. The result is lacklustre private investment. The slowdown in consumer demand seems to be associated with slower corporate wage growth,” they said.

Slowing rate of nominal GDP

The officials observed that another headwind that is emerging is the slowing rate of nominal GDP, which could hinder fiscal spending, including on capex, to achieve budgetary deficit and debt targets.

“As we pointed out in November, if inflation is allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports.

“The time to act is now to excoriate inflation and revive investment strongly, especially as the usual winter easing of food price is setting in and the prospects of private consumption and exports accelerating are getting brighter,” the officials said.