Urban households expect inflationary pressure to sustain through this fiscal and the first quarter of 2012-13 and feel there may not be any softening of food prices, an RBI survey shows.

While June 2012 household inflation is expected to be 12.9 per cent, up from the 12.7 per cent perceived for March 2012, daily-wage workers and housewives expected higher inflation rates to continue.

As per the ‘Inflation Expectations Survey of Households: June 2011 (Round 24)’ conducted by the apex bank, the rise will be mainly on account of movement in food prices.

It also found that 25 per cent of the respondents surveyed believe that the Reserve Bank is taking necessary action to control inflation.

While the housewives surveyed said they expect inflation to be 13.1 per cent by June 2012, daily wage workers said it would be 13.4 per cent.

On the other hand, financial sector employees and self-employed projected inflation to be 12.1 per cent and 13 per cent, respectively, by year-end.

“Unlike in last round of the survey, the percentage of respondents expecting price rise have gone up for all product groups (viz., food, non food, households durables, housing and services),” the survey said.

It further added: “However, expectations on general price rise were mainly influenced by movements in food prices“.

The survey found that households expect inflation to rise further by 170 basis points during the next 12 months from the perceived rate of 11.2 per cent in April-June quarter of the current fiscal.

Headline inflation, as measured by Wholesale Price Index (WPI) has been hovering above 9 per cent since December, 2010.

It stood at 9.44 per cent in June.

After a brief period of moderation, the rate of price rise of food items has also started climbing and food inflation stood at a four—and—half month high of 9.90 per cent for the week ended July.

“From September 2010 round of the survey, household inflation expectations are higher than the official inflation rates. In the current round also, the same trend has been observed,” the survey said.

RBI found that 98.7 per cent of the respondents believe that prices will increase. This shows that more urban households have come to the view that inflation is on the upswing than during the previous survey when 96 per cent respondents had given such a view.

The survey was conducted in April-June 2011 and covered 4,000 urban households across 12 cities for the July-September 2011 quarter and the July 2011-June 2012 period.

The latest survey is the 24th conducted by RBI to find inflation expectations of Indian households. RBI has been conducting such surveys on a quarterly basis since 2005.

“As in the past rounds, the general price expectations are more aligned with food price expectations as compared to other product groups,” the survey said.

While 94.8 per cent respondents said they expects food prices to rise during July 2011—June 2012, 86.6 per cent had a similar opinion regarding price rise of non—food items.

“For household durables and housing, more respondents are expecting price to increase as compared to the previous round... the same is expected to increase for the next one year,” RBI’s Households Inflation Expectations Survey said.

In all cases, except cost of housing, the percentage of households expecting prices to rise in July 2011—June 2012 has increased during the 24th survey as against the previous one.

Regarding the apex bank’s monetary policy, the survey said: “25 per cent of the respondents felt that RBI is taking necessary action to control inflation...out of this, 51 per cent felt that RBI’s action has an impact on controlling inflation“.

The RBI has hiked its key-policy rates 11 times since March, 2010 to curb the inflationary pressure in the economy.

Keywords: RBI surveyinflation

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