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More Indians see inflation stabilizing: RBI survey

LiveMint logoLiveMint 10-06-2014 Anup Roy

Mumbai: More Indian families expect the rate of inflation to stabilize around current levels, and not gallop away as they had feared a few quarters ago, according to a survey published in the Reserve Bank of India’s (RBI’s) June monthly bulletin.

The central bank conducts the Inflation Expectations Survey of Households every quarter. It covers 5,000 urban households across 16 cities to capture expectations of households for the coming three-month period, and the year ahead from the survey date.

The current survey, pertaining to the March quarter, was released on Tuesday. It found that 51.2% of the respondents expected prices to “increase by more than current rate” in the next three months, that is up to June.

RBI said that in comparison, in the quarter ended September 2013, 74.5% of the respondents had been expecting prices to rise at more than the current rate in the next three-month period.

For the year-ahead period, while 76.6% of the respondents had expected a sharp price rise in September, the number fell to 59% in the March quarter.

The central bank has been conducting this survey since September 2005, but this is the first time that the three-month ahead inflation expectation is lower than the current inflation perception. Typically, inflation expectations move in tandem with current inflation perceptions.

Consumer-price based inflation, the main gauge by which the central bank measures price rises, was 8.59% in April, a three-month high, rising from the previous month’s 8.31%.

The survey results are not projections by RBI, but the poll is important because inflationary expectations eventually feed into real price rises. The survey results are also a key input in shaping monetary policy decisions by the central bank.

In its bi-monthly monetary policy on 3 June, RBI kept policy rates unchanged, but increased banking sector liquidity by slashing the mandatory bond holding requirement for banks.

“Product group-wise price expectations show that the general price expectations are relatively more aligned with food price expectations than with other product groups,” the survey report showed. The trend is similar for both the three-month period as well as the one-year ahead.

In its monetary policy, RBI said it remained committed to keeping the economy on a disinflationary path, taking inflation measured by the Consumer Price Index to 8% by January 2015, and 6% by January 2016.

“If the economy stays on this course, further policy tightening will not be warranted. On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance,” the central bank said.

The monsoon will play a critical role in determining prices, according to RBI. Irregular weather patterns, leading to deficient rainfall, may push up food prices sharply and pose a risk to growth, economists have warned.

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