Urban households expect inflationary pressures will continue to stay at higher levels in 2011, and do not see the food prices moderating considerably during this period.
A survey conducted in the October-December 2010 quarter by the Reserve Bank of India (RBI) found that households expect inflation to be around 13.1 per cent by end-2011, from the expected level of 11.8 per cent for the quarter in which the survey was conducted.
The survey called 'Inflation Expectations Survey of Households' captured inflation expectations of 4,000 people in 12 cities, half of the participants coming from the four metros. About 98.9 per cent of the participants saw the priceline moving up over the year, while 0.9 per cent of them said they saw no rise in prices in 2011. Only 0.3 per cent expected prices to decline.
For the three months ahead (January-March 2011) inflation was expected to be around 12.4 per cent. However, inflation for February 2011, the latest month for which the wholesale price index (WPI) is available, has moderated to 8.82 per cent.
INFLATION FEARS GALORE
RBI conducted the survey in Oct-Dec 2010 quarter. It captured inflation expectations of 4,000 people in 12 cities, with 50% participants from four metros. The survey finds:
Inflation to be 13.1% by end-2011 from 11.8% level then
About 98.9% of the participants saw the priceline moving up over the year
About 0.9% said they saw no rise in prices in 2011 & only 0.3% thought prices may dip
For Jan-March 2011, inflation is expected to be around 12.4%
Even as the official indicators (like WPI & food inflation) are dipping, expectations are showing an upward swing
Thus, even though the official indicators (like WPI and food inflation) are moving in the downward direction, expectations are showing an upward swing. This is still higher than the seven per cent projection made by the RBI for March 2011, and far above RBI's comfort level of five to 5.5 per cent level.
"The survey findings indicate that households expect inflation to rise further by 60 and 130 basis points during the next quarter (12.4 per cent) and next year (13.1 per cent), respectively, from the perceived current rate of 11.8 per cent. Households' expectations of general price rise were mainly influenced by the movements in food prices," the survey said.
"The percentage of respondents expecting price rise have gone up for all the product groups (viz., general prices, food and non-food products, households durables and housing), except cost of services," it added.
On category-wise inflation expectations, daily wage workers and housewives expected higher inflation rates compared to other categories. Across the cities, Bangalore registered the highest inflation expectations and Patna the lowest. Though the survey was completed more than a quarter back, it was released for the public only now.
For a large part of the survey's history, households' inflation expectations remained between the WPI and Consumer Price Index for Industrial Workers (CPI-IW) inflation rates. "However, in the current survey round, household inflation expectations are higher than the official inflation rates," the survey found.
While the housewives surveyed said they expected year-end 2011 inflation to be 13.2 per cent, daily wage workers said it would be 13.5 per cent by end-2011. Male participants saw inflation at around 13 per cent. Financial sector employees reported the lowest inflation rates.
Inflation expectations in the current survey have been marginally lower than the peak rates of September 2008. RBI had been conducting this survey since September 2005. While inflation affects purchasing power, inflation expectations affect people's behaviour in ways that have a long-term economic impact.
Inflation expectations of households are subjective assessments and are based on their individual consumption baskets and so may be different from the official inflation numbers released periodically by the government.Courtesy: Mail Today