About 83.8% of the 5,289 households expected food prices to rise in the next three months as against just 77.2% a year back.
Reserve Bank of India's (RBI) household inflation survey, an important data point for central bank's rate decisions, has showed that 83.8% households expected the inflation to accelerate in next three months, against 77.2% in the year ago period.
Both three months and one year ahead inflation expectations rose 0.20% in June 2018 over May 2018, when the survey was conducted.
About 83.8% of the 5,289 households expected food prices to rise in the next three months as against just 77.2% a year back.
About 78.2% of the households expected the non-food inflation to go up in June 2018 as against just 72.1% of the households a year back. About 71.6% of the households expected the housing prices to go up in June 2018 as against just 64.3%.
Saugata Bhattacharya, chief economist, Axis Bank, said, “Oil prices and food prices influence household surveys. When RBI maintained a status quo in the four years up to June 2018 household expectations on inflations had fallen sharply following the dip in oil prices and softening of food inflation.”
Demonetisation also had a softening impact on inflation as money supply dried up and consumption plummeted demand. But from December 2017 the inflation expectations have been consistently on the rise.
In the June survey, the inflation expectations also rose in tandem with age of the respondents. The 55- to 60 year old expected the inflation to rise more than the below 25-years-olds surveyed. Similarly, while the self-employed and daily workers had the highest inflation expectation while the financial sector category of employees had the lowest.
The survey conducted at regular intervals by the Reserve Bank of India provides useful directional information on near term inflationary pressures.
The surveys are generally influenced by the price of oil and food. From May 2014 to November 2014 the inflation expectation fell sharply due to the fall in commodity prices, particularly of oil.
In November 2016, it fell again sharply after demonetisation. But from December 2017 it has been consistently on the rise, which, in part, led to RBI hiking rates by 0.25% in June 2018 for the second time in four years.
RBI governor Urjit Patel said that the “June round of the Reserve Bank’s survey of households reported a further uptick of 20 basis points in inflation expectations for both three-month and one-year ahead horizons as compared with the last round”. He said that RBI needs to maintain the near-term inflation at 4%, which is the legislated target.
Retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 % in May to 5% in June, driven by an uptick in inflation in fuel and in items other than food and fuel even as food inflation remained muted due to lower than the usual seasonal uptick in prices of fruits and vegetables in summer months. Low inflation continued in cereals, meat, milk, oil, spices and non-alcoholic beverages. Pulses and sugar prices remained in deflation.
Feeling the heat
- About 83.8% of the 5,289 households expected food prices to rise in the next three months as against just 77.2% a year back
- About 78.2% of the households expected the non-food inflation to go up in June 2018 as against just 72.1% of the households a year back
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