ECB Study Reveals That Spending on Durable Non-Essentials Is Most Interest-Rate Sensitive
SDG 8: Decent Work & Economic Growth | SDG 16: Peace, Justice & Strong Institutions
Institutions: Reserve Bank of India | Ministry of Finance
The ECB working paper No. 3127 analyses how monetary policy shocks (like interest rate increases) affect household spending in the euro area, using two key dimensions: durability (how long a good lasts) and essentiality (how necessary it is). It finds that:
Durable goods (cars, appliances) are more sensitive to rate changes than non-durables (food, utilities).
Non-essential items respond more sharply than essential goods (basic necessities).
The greatest decline occurs for items that are both durable and non-essential (e.g. recreational vehicles, luxury appliances).
Because households can postpone purchases for durable, non-essential goods when rates rise, these categories show the strongest drop in demand under tighter monetary policy.
In India, similar consumption behavior might play out-durable and non-essential retail sectors (cars, electronics, furnishings) could see sharper slowdowns when interest rates rise. Policy tools (like targeted credit support or incentives) may help cushion sectors most sensitive to rate cycles.
What is Durability vs Essentiality? → “Durability” means a good lasts over time (cars, appliances), “essentiality” classifies whether something is necessary for daily life (food, utilities) or discretionary.
Follow the full paper here: https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp3127~83e48a00cd.en.pdf