Indian households continue to expect that prices will go up in the near future, even though the actual rate of inflation has been stable and under control. As per a new data published in the Reserve Bank of India's (RBI) July 2025 Bulletin, consumer inflation expectations continue to exceed those of professionals and firms.
The article titled Household Inflation Expectations in India: Emerging Trends, Determinants and Impact of Monetary Policy from the bulletin explains that even during low or stable inflation, household members continue to expect prices to keep increasing. There has been an "upward bias" throughout and even more so now since headline inflation (which refers to the overall inflation in an economy, encompassing all goods and services, and including the volatile prices of food and energy) has been below 4 per cent for five consecutive months.
Expectations Still Higher than Reality
The RBI study highlights that households' inflation expectations often do not match the actual inflation figures. Their belief is influenced by their personal experience with prices in the past, especially food prices and fuel costs, which tend to be more visible and sensitive.
This discrepancy between reality and expectations matters because it influences the way individuals budget their savings and spending. When individuals perceive prices to increase, they will spend more in the present or earn more wages, which then can influence actual inflation in the economy.
The report also shows that the disagreement in inflation expectations across different demographic groups, such as income or education levels, has been slowly reducing since 2023–24. This means people are becoming slightly more aligned in how they view price trends, but the overall bias remains.
Why Expectations are Sticky
One of the key findings of the RBI's article is that past price experiences play a big role in shaping expectations. If people have faced high prices before, they are more likely to expect prices to rise again, even if inflation data says otherwise.
"Perceived past inflation expectations add to stickiness in household expectations even as the influence of realised inflation dynamics becomes stronger when expectations are adjusted for extreme values," the RBI report said.
RBI observes that such stickiness in inflation expectations is driven more by headline inflation and less by inflation in food. However, once food inflation is volatile and widespread, expectations are elevated. It becomes that much harder for inflation expectations to normalise even if food prices subsequently ease.
Policy has Helped, but Work Continues
The article also states that the shift of RBI to the flexible inflation targeting (FIT) framework has stabilised inflation expectations in the long run. In this framework, the RBI tries to maintain inflation within a target range, typically 2 per cent to 6 per cent. Monetary policy has become more powerful in influencing public expectations regarding prices since adopting FIT.
According to RBI, its efforts to keep inflation in check through interest rate adjustments and other policy tools have played a key role in bringing household expectations closer to reality. But despite these efforts, the public continues to expect higher inflation than professionals or market participants.
What it Means for Households
For regular households, the report highlights how important it is to rely on verified inflation data and not only on day-to-day experiences. Overestimating inflation may lead to decisions like reducing savings, rushing big purchases, or avoiding long-term financial planning.
