How useful are RBI’s inflation surveys?
SummaryThe RBI conducts a bimonthly survey to assess how households perceive inflation. But households tend to severely overestimate inflation. Since inflation perceptions shape decisions to spend and invest, it’s important for the surveys to hold greater meaning.
When the Reserve Bank of India (RBI) raised interest rates last year, its aim was to curb inflation. The key link in the transmission from rate hikes to lower prices is inflation expectations: households and corporates have to be convinced that inflation will be brought under control, so that they are motivated to consume and invest. To this end, the RBI conducts a bi-monthly Inflation Expectations Survey of Households (IESH), in which it asks a sample of households about their views on current and future price movements. Unfortunately, the results have not served this purpose very well.