• While many macro indicators relating to India are all over the place, one indicator that is behaving itself is the inflation rate.
  • After averaging 10.4% in the five years from 2009 to 2013, CPI inflation for industrial workers (the old measure of consumer price inflation) collapsed to 4.91% in the last five years.
  • The new CPI series flagged off in 2012 shows even more heartening trends.
  • It shows that consumer-level inflation has stayed below 4% for 12 consecutive months now, nosediving to 2% in January 2019.
  • This survey shows that the proportion of households expecting prices to rise has been falling steadily in the last five years.
  • In fact, just last week, the Monetary Policy Committee cited the sharp decline in household inflation expectations while cutting interest rates.
  • But after consistently topping 95% from end-2009 to June 2013, the proportion of people expecting prices to rise began to moderate from the second half of 2013.
  • Hovering at 70 to 80% for the last five years, the proportion stood at 72.9% in the latest December 2018 survey.
  • The fear that inflation will spiral out of control has receded in the last five years too.
  • One of the worst spells of inflation experienced by Indian consumers in the past decade occurred in 2013, when official CPI inflation stayed above 10% for four consecutive months from August to November 2013.
  • At that time, households asked by RBI to estimate current inflation rates pegged the number at 12%-plus.
  • So, when inflation was sky-high at 10%, Indian households believed it to be 12%-plus.
  • Now, when it is at 2%, they still believe it to be at 8.3%.
  • In effect the gap between actual inflation data and the layman’s perception of it has sharply widened.
  • Some suggest that Indian household expectations of inflation tend to be ‘adaptive.’
  • That is, when asked about inflation rates or expectations, households base their responses on past data, instead of sticking their neck out on how prices would move in future.