RBI survey projects double-digit inflation rate, not 6%

Though the Reserve Bank of India has forecast retail inflation to be under 6% in the whole of the current financial year (2022-23), its own survey conducted last month involving over 6,000 urban households in 19 major cities, including Bangalore, revealed that households fear consumer inflation may move into double-digits in the next three months to one year.

Households’ median inflation perceptions for the current period remained unchanged at 9.7% in the latest survey round, while the expectations for both three months and one year ahead rose by 10 basis points each to 10.7%. For a majority of population and age groups, uncertainty in inflation expectations increased for both three months and one-year horizons, as compared to the previous survey round, the RBI survey said.

This is way ahead of the RBI's projection of 5.7% for retail price inflation in the financial year 2022-23. However, the RBI too has said that its inflation forecast will remain valid only if crude oil remains within $100 per barrel for the entire period of fiscal 2022-23.

The latest round was conducted between March 2 and 11. A similar survey was conducted in January, which reflected that people were still hopeful of prices coming down.

Three months ahead expectations for overall prices and inflation were generally aligned to those for food and non-food products, while one year ahead expectations were more aligned to those for non-food products and services.

The survey which is conducted once in two months provides directional information on near-term inflationary pressures as expected by the respondents

Based on its own survey, the RBI Monetary Policy Committee has decided to withdraw liquidity to keep inflation under control.

India's banking system liquidity surplus currently is over Rs 8 lakh crore, RBI Governor Shaktikanta Das has said, adding these would be gradually withdrawn over a period of a few years as the RBI has now put inflation as its priority before growth.

"For the last three years, starting February 2019, we had put growth ahead of inflation. The stance continues to be accommodative while focussing on withdrawal of accommodation. So, we are gradually moving away from that stance, which has been there for more than two years," Das had said in a post-policy presser on Friday.

"The MPC sensibly decided to keep monetary policy accommodative despite inflation being marginally above its tolerance band. Two good reasons justify the policy: (a) inflation is high partly because of (external) supply shocks, so reducing aggregate demand (through monetary tightening) will not address the issue; (b) there is a considerable output gap, with the economy having contracted 6.6% in FY21, and estimated to have grown 8.9% in FY22 (far from closing the gap, in an economy with potential growth of 7% annually). Staying accommodative is thus the right approach: loan growth needs to accelerate to enable a rebound in domestic demand, but the RBI will also withdraw accommodation tactically if inflation gets too far from the target," said Prasenjit K Basu, Chief Economist, ICICI Securities.

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