Inflation expectations: What are these and do they really play a role in India’s economy?

Subscribe to enjoy similar stories.Economists often talk of ‘inflationary expectations’ and one may be left wondering what these mean. In essence, the argument goes that present inflation is not relevant as this has already been witnessed. What is important is future inflation, which is why expectations of price levels matter.

Rising crude oil prices, for example, portend higher general inflation ahead. A possible El Niño weather phenomenon this year can influence inflation expectations for the second half of this year as there could be deficient monsoon rainfall, which could cause food prices to rise. These expectations tend to feed decisions taken by consumers and producers, turning rising prices into a kind of self-fulfilling prophecy and affecting the economy.

But does it really work this way?In India, an anomaly emerges when the inflation rate based on the consumer price index (CPI) is juxtaposed with the inflationary expectations and perceptions of households captured by the Reserve Bank of India (RBI) in surveys conducted on a bi-monthly basis. For 2025-26, for example, there were six surveys carried out, with responses for inflation up to March 2026. Besides perceptions on prevalent inflation, forward expectations are also sought from respondents.

Interestingly, household perceptions tend to be significantly higher than actual inflation. In RBI’s six surveys conducted in 2025-26, the average of the median rate of perceived inflation was 7.2%, while India’s official CPI inflation as an average over those 12 months was 3.3%. From one survey to another, the gap between perceived and actual inflation was as high as 6 percentage points in September and November.