Indian Households See Prices Rising Further as Food and Fuel Costs Bite, RBI Survey Shows

Indian households are becoming increasingly worried about the cost of everyday life, with expectations of higher inflation rising noticeably in September as food and fuel prices put greater pressure on household budgets. 

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The Reserve Bank of India’s latest survey showed that people expect inflation to remain elevated over both the next three months and the coming year. 

Median inflation expectations for the next three months rose to 9.9% in September from 9.2% in the previous survey. Looking a year ahead, households now expect inflation of 10%, up from 9.4% earlier. 

The numbers do not mean actual inflation will reach those levels. They reflect how households perceive prices and where they believe they are headed. 

Households Feel Inflation More Sharply 

The change was visible not only in expectations about the future but also in how people view prices today. 

Median inflation perception — what households believe the prevailing rate of inflation to be — climbed to 8.4% in September from 7.8% in the previous round. 

More respondents also said they expect general inflation to increase over both the three-month and one-year periods. 

Food and fuel costs have played an important role in shaping those concerns, with rising prices increasingly being felt beyond the headline inflation numbers. 

More than 6,000 Households Participated in the Survey 

The survey was carried out by the RBI between September 10 and September 20 in 19 of India's major cities. 

The RBI received responses from 5,987 households. 

This survey provides us an opportunity to see how the consumers themselves feel about the rising prices, which in some cases may be very different from the inflation figures. 

The RBI has made it amply clear that the household inflation expectations cannot be seen as a prediction for the future inflation levels. 

These expectations reflect the sentiments and sentiment is important as people's views about price levels may affect their expenditure, savings, and wage bargaining. 

Rising Price Concerns Come as RBI Raises Rates 

The survey findings arrived alongside a significant change in monetary policy. 

On October 7, the RBI raised the repo rate by 25 basis points to 5.5%, its first increase in nearly four years. The Monetary Policy Committee voted unanimously for the increase. 

The central bank also moved its policy stance from “neutral” to “calibrated tightening”, leaving the door open for further action depending on how inflation and economic growth develop. 

Consumer inflation had already risen to 4.82% in August, remaining above the RBI’s 4% medium-term target for a third consecutive month. 

How Households' Inflation Expectations Are Important 

What the households expect from inflation can actually affect the whole economy in the long run. 

In case households start to think that food products, fuel and all the other necessities are going to get more expensive, they might alter the decision about how they spend money or demand higher wages due to the increased cost of living. 

This is one of the reasons why central banks closely monitor the development of households' inflation expectations. 

The September survey indicates that this issue becomes more serious. 

Apart from the fact that the households believe that the rate of inflation has already grown, the households now expect that the rate of price growth will be high in the following months. 

Thus, it becomes crucial to observe the next couple of readings on inflation. 

Though the household survey reflects the sentiment but not predicts the inflation rate itself, it demonstrates that the increased price of food and fuel affects Indian consumers.