Five years is a long time to live with 4Percent-plus inflation. It can leave a bitter taste.
Subscribe to enjoy similar stories. Inflation has persisted stubbornly for five years now. In October 2019, India’s retail inflation exceeded the 4% official midpoint target set by the Reserve Bank of India (RBI), and has remained there for all but two months in 2024.
The latest inflation number for October exceeds even the RBI’s upper tolerance limit of 6%, setting off fresh alarm bells. Markets are focused on how monetary policy will react and whether this will delay interest rate cuts. High prices are the legacy of inflation, and they impact the psyche of consumers.
Ordinary households are concerned about the prevailing prices of what they buy rather than the inflation rate measured as a statistic. The reality is, prolonged inflation means prices are high by previous standards even when the rate itself has slowed down. Also read: Inflation hump: Will it continue beyond October? At an annual inflation rate of 4%, an item’s price will rise from ₹100 to ₹122 in five years.
The power of compounding—delightful when we watch our savings multiply—is devastating when costs shoot up year after year. Some insights on how prolonged inflation impacts households’ spending and saving decisions can be gleaned from the RBI’s bimonthly surveys of urban households: the Inflation Expectations Survey of Households (IESH) and the Consumer Confidence Survey (CCS). Actual inflation has been trending down, but expectations of rising prices continue to linger, as measured by IESH.
In the worst months of 2022, about 30% of households sampled by the IESH expected inflation to shoot up to over 16% (year-on-year) over the following quarter and in the year ahead. By September 2024, only 13-15% expected the same. This might seem like inflation
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