Your Relationship With Inflation Matters

OUR expectation of inflation matters. It is your view that plays a significant role in determining borrowing rates.

- Rajas Kelkar (The author is editor-in-chief at www.moneyminute.in)

The Monetary Policy Committee of the Reserve Bank of India takes note of the regular household inflation expectations surveys conducted by its field team. However, there is no harmony in the way households view inflation.

A study published in the latest RBI monthly bulletin explains the trend in household inflation expectations. It reveals that men aged 45 and above, as well as self-employed and daily workers who tend to operate on variable incomes, usually exhibit higher inflation expectations. That is primarily because of access to real-time prices for input costs incurred or labour paid.

However, if you are a salaried individual or a young person, the RBI analysis reveals that your social and financial network influences your perception of inflation. That means your reading habits on financial matters, whether through newspapers or social media, impact the way you view the inflation rate. Macroeconomic shocks, such as volatility in food prices, drive household views on inflation over the year ahead. There are emotions and biases involved in forming that view, too, the study finds.