The utility of the IESH is limited given its costs and other data sources being available

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New Delhi | Published: August 3, 2018 2:20:18 AM

The utility of the IESH is limited given its costs and other, more verifiable, data sources being available.

RBI’s latest quarterly Inflation Expectations Survey of Households (IESH) survey—as has been the custom since 2015—was released as part of the central bank’s quarterly review meeting.

RBI’s latest quarterly Inflation Expectations Survey of Households (IESH) survey—as has been the custom since 2015—was released as part of the central bank’s quarterly review meeting. The survey was initially launched to take into consideration consumers’ expectations of inflation movement for policymaking purposes—for bureaucrats, bank officials and industry players to gauge how households are making their choices based on their inflation expectations. Taking households’ opinions into account should seem smart strategy, especially since households must bear the inflation burden. But, the question to ask here is: Are households equipped to assess future inflation? Very often, a rise in prices is confused with inflation growth—if households feel that prices are going to rise in the near future—whatever the measure of inflation growth/fall—they alter consumption.

Households have never got it right with their inflation estimates. For example, in the survey published in June 2016, the perceived inflation rate for the period from June 2015 to June 2016 started at 9-10% and the future projections of the same tapered off slightly to end at around 8%. The increase in the all-India CPI was actually 4.9% during FY16, having come down from 9.5% just two years before that. This sudden and drastic change, though, did nothing to alter households’ inflationary expectations. Neither did the continued drop in the rate of price-rise alter expectations in the survey published in June 2017, as consumers began with an identical perceived inflation rate of 8-10% as they did in June 2016, and, despite the acceptance of a drop in the rate, expected inflation to average 7% over the next year. The inflation rate had, in fact, dropped to 4.5% during FY17, and, further, the increase was a modest 3.3% in Q1FY18. When there are other data sources that are much more accurate with respect to inflation estimates and projections—such as the bond yield data of secondary debt markets—and when the cost of carrying out a household-level survey is likely to be be high, it is time that RBI took a call on scrapping it.

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