Household Inflation Expectations Shoot Up In May

The proportion of Indian households expecting prices to rise at a faster pace than the current rate rose in a survey conducted by the Reserve Bank of India in May. The expected inflation rate three-months and twelve-months down also rose, the survey showed.

This rise in inflation expectations was cited as a key reason behind the MPC's decision to hike the policy rate by 25 basis points to 6.25 percent. The rise in households' inflation expectations could feed into wages and input costs in the coming months, the MPC cautioned.

The survey results showed that inflation expectations three-months from now rose 90 basis points between the March and May surveys. An even sharper rise was noted in the one-year ahead expectations that rose 140 basis points to 9.9 percent.

More than 62 percent of the respondents in RBI's survey said that they expect prices to increase faster than the current rate a year from now. Just about a quarter of the respondents expect the inflation rate to remain at current levels.

India's retail and wholesale inflation had risen in April overturning a three-month slide from its peak. That was mainly due to a surge in global crude oil prices and a rise in housing prices. And even as food prices cool down after months of seasonality, concerns remain. The government has announced a hike in the minimum support prices for kharif crop farmers that could add to food inflation. The housing rent allowance revisions for government employees too will add to the upward pressure.

For the first half of FY19, the MPC expects inflation to stay between 4.8-4.9 percent.

Consumer Confidence

A separate survey on consumer confidence across six metropolitian cities showed that confidence levels remained almost the same as in March.

The current situation index slid by one point into the pessimistic zone, while the future expectations index showed a marginal uptick, according to the RBI's Consumer Confidence Survey.