RBI'S 19-CITY SURVEY SHOWS HOW HOUSEHOLD INFLATION EXPECTATIONS STEER POLICY

The survey's broad 19-city reach ensures varied perspectives, directly informs RBI's inflation-targeting strategy, and encourages wider participation through door-to-door and online responses.

- 

The Reserve Bank of India (RBI) announced the September round of its Inflation Expectations Survey of Households (IESH). Conducted every quarter since 2008, the survey invites households in different cities to share their perceptions of current price levels and their expectations for the future.

This particular round will reach nineteen cities, ranging from major metros like Mumbai, Delhi and Chennai to state capitals such as Guwahati, Jaipur and Patna. For many readers, the idea of a central bank asking people about how they feel about prices may seem abstract or even trivial.

Why does the RBI care about subjective expectations, and how does this exercise influence monetary policy? In this explainer, we unpack the purpose of the IESH, discuss how it is conducted, and explore why inflation expectations matter for policymakers and households alike.

UNDERSTANDING INFLATION AND INFLATION EXPECTATIONS

Inflation refers to an overall increase in the prices of goods and services, resulting in a decline in the purchasing power of money. When inflation is positive, each unit of currency buys fewer goods and services than before. India's inflation is commonly measured using two indices: the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services consumed by households, and the Wholesale Price Index (WPI), which measures price changes at the wholesale level.

The RBI's Monetary Policy Committee (MPC) uses the CPI to set policy, aiming to keep inflation at 4% ffl 2%.

Inflation is not inherently bad. Moderate and predictable price increases can encourage consumption and investment, enabling economic growth.