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Business News/ Industry / Manufacturing/  Raghuram Rajan’s next challenge: winning over moms and pensioners
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Raghuram Rajan’s next challenge: winning over moms and pensioners

Housewives, pensioners and labourers who toil for a daily wage see prices rising about 11% or more in a year, faster than the current 4.4% pace

While it’s common for consumers’ perceptions to be higher than published numbers, the challenge for Raghuram Rajan is to make sure both fall in sync as he seeks to bring inflation durably down to around 4% by March 2018. Photo: HTPremium
While it’s common for consumers’ perceptions to be higher than published numbers, the challenge for Raghuram Rajan is to make sure both fall in sync as he seeks to bring inflation durably down to around 4% by March 2018. Photo: HT

Mumbai: To win India’s inflation war, Reserve Bank of India (RBI) governor Raghuram Rajan needs the support of unlikely allies: housewives, pensioners and labourers who toil for a daily wage.

They see prices rising about 11% or more in a year, faster than the current 4.4% pace. Expectations also vary across geographies, ranging from 7.2% in the tech-city of Bengaluru to 15% in former Communist-led Kolkata and 16% in mountainous Guwahati. Food plays a key role, with almost 90% of respondents saying those prices will increase.

While it’s common for consumers’ perceptions to be higher than published numbers, the challenge for Rajan is to make sure both fall in sync as he seeks to bring inflation durably down to around 4% by March 2018. Households’ expectations have inched up for three quarters in a row, reducing room for further interest-rate cuts this year.

“Food prices have a really big bearing on inflation expectations," said Shilan Shah, a Singapore-based India economist for Capital Economics Ltd. “It’s part of the reason we think the RBI might actually turn slightly more hawkish from now."

Convincing all Indians that prices will rise only gradually helps moderate their wage demands and contain overall inflation. Complicating the task is a recent surge in the price of pulses, which followed a jump in the cost of onions, both staples of Indian meals.

Years of 9%-plus price growth has left its mark on Indians, Rajan has said. When surveyed, households tend to answer based on the last item they bought, such as pulses, milk or eggs.

“It’s salient stuff which stays in their mind and they say ‘oh my God this has gone up so much!’" he said in an interview to NDTV on Thursday. “Much of what they pick out typically has some fluctuations, they go up but they also come down—they don’t really seem to pick up the down phase."

The RBI doesn’t necessarily look at the absolute level of expected inflation but is more concerned with the direction and magnitude of moves, officials have repeatedly said.

The RBI’s 29 September survey of 4,903 urban households show that housewives—who comprise 29% of respondents—expect a 100 basis point jump in inflation over the next 12 months compared with those in the financial sector who predict just a 40-point increase.

“Price spurt in key items is standing in the way of household inflation expectations falling," said Pranjul Bhandari, a Mumbai-based economist at HSBC Holdings Plc. “If we are able to arrest spikes in specific items over the next couple of months, we could start seeing the impact." Bloomberg

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Published: 09 Nov 2015, 09:11 AM IST
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