Business

Inflation: Household inflation expectations above official figures under the inflation targeting regime: Report

Flexible inflation targeting has failed to fix inflation expectations for Indian households. According to RBI’s latest “Currency and Financial Report,” current household inflation perceptions have surpassed all official inflation indicators since adopting a flexible inflation target as a formal monetary policy target.

Inflation expectations have stabilized in the range of 9-10% for households and 4-5% for professional forecasters, according to a survey by RBI economists. The actual inflation rate is below 6%, which is the upper limit of the target.

In June 2016, India officially adopted a flexible inflation target (FIT) to put price stability defined in terms of the target CPI (Consumer Price Index) inflation as the main purpose of monetary policy. did. The government requires a 4% target for CPI inflation in the plus or minus 2% band.

FIT focuses on fixing public inflation expectations through a credible commitment to the publicly announced inflation target. This increases the chances of permanent price stability.

Inflation rates in the CPI have consistently exceeded the target limits from April to November, primarily due to supply-side constraints caused by the pandemic’s national blockade.

“On a relative basis, the RBI has been successful in causing lower inflation expectations,” said Rafuru Bajoria, chief Indian economist at Barclays Capital. “It’s not uncommon for expectations to always exceed target levels, as consumers are constantly confusing asset prices with consumer prices.” Based on recent experience, household expectations of inflation are fuel prices. The RBI said it was vulnerable to shocks.

This trend is also seen worldwide, including in developed and emerging markets, as the report points out. “Professional predictors’ expectations generally stabilize relatively quickly around the inflation target, but household expectations generally exceed the inflation target / upper tolerance and several years to ease after the formal adoption of the inflation target. It often takes. ”

According to a survey by RBI economists, the impact of actual inflation on inflation expectations (IE) has dropped significantly from peak levels in 2010-2014, with inflation expectations for both households and expert forecasters at one year. I’m ahead.



Inflation: Household inflation expectations above official figures under the inflation targeting regime: Report

Source link Inflation: Household inflation expectations above official figures under the inflation targeting regime: Report

Related Articles

Back to top button