Inflation outlook: Indian households expect price pressure to cool; here’s what RBI survey says

Introduction

Inflation expectations matter. For central banks and policymakers, what households expect future inflation to be is almost as important as what inflation is today. Expectations help anchor behaviour: wage negotiations, consumption plans, savings, and investment all hinge on whether consumers believe prices will keep rising sharply or will stabilize. In this context, the RBI’s Inflation Expectations Survey of Households (IESH) offers a direct window into how Indian households perceive and anticipate inflation. Recent results from this survey suggest a growing belief among households that price pressures are likely to ease. This shift, if sustained, could help RBI in its price stability mandate, while also influencing consumption dynamics and monetary policy.

In the following sections, I first summarise the key findings from the latest survey rounds. I then interpret what these results imply for inflation dynamics, monetary policy, and downside risks. Finally, I reflect on how credible this optimism is, and what caveats must be borne in mind.

Key Findings from the RBI Survey

Survey design and context

• The IESH is a bi-monthly (or roughly every two months) survey conducted by RBI across 19 major cities in India.
• It collects both qualitative responses (expectations about price changes in broad and specific categories such as food, housing, non-food, services) and quantitative estimates (for current, three-month ahead, and one-year ahead inflation).
• The sample size is of the order of ~6,000 valid responses in recent rounds.

Thus, while the survey is not nationally representative in every dimension (it focuses on major cities), it is sufficiently large and regularly collected to detect shifts in sentiment.

Changes in perceptions and expectations

The most recent survey rounds yield a cautiously optimistic tone in household inflation expectations:

• In the September 2025 round, households reported easing of price pressures across both food and non-food categories.
• The median perception of current inflation rose slightly to 7.4 percent, up 20 basis points from the prior round—a modest uptick in how people feel inflation is already affecting them.
• However, expectations for the next three months fell to 8.1 percent (down by 20 basis points), while the one-year ahead expectation fell by 30 basis points to 8.7 percent.
• In the May 2025 survey, the median perception of current inflation had declined slightly to 7.7 percent (from 7.8 in March).
• That same May round showed that one-year ahead expectations had moderated by 20 basis points to 9.5 percent.
• The share of respondents expecting general prices to rise in the future has declined relative to earlier rounds, indicating less widespread anxiety about runaway inflation.
• Consumer confidence also saw modest improvement in September 2025 in both urban and rural areas, and inflation expectations softened in that round.

Taken together, the data suggest that while households still perceive high inflation, their anticipation of future inflation is gradually softening.

Interpretation & Implications

The easing in household inflation expectations is a signal with potential ramifications for macro policy, consumption trends, and inflation dynamics. Below, I explore these implications, tempered by caution about the survey’s limitations.

Anchoring of expectations and credibility of RBI

One of the perennial challenges for central banks is ensuring that inflation expectations remain anchored, especially in economies prone to supply shocks (e.g. food, fuel, weather). When households believe inflation will run away, they may demand higher wages, preemptive price increases may become more common, and the central bank may find itself chasing inflation rather than containing it.

The moderation in expectations (especially for the one-year horizon) suggests that some of the central bank’s efforts—combined perhaps with fiscal discipline, supply management, and tax reforms (such as rationalisation of GST rates)—are gradually gaining credibility among consumers. In fact, the RBI recently trimmed its inflation forecast for FY 2025-26 to 2.6 percent (from earlier ~3.1 percent) and held the repo rate at 5.5 percent, citing favorable monsoon, supply conditions, and tax rationalisation.
If households expect inflation to ease, this gives the central bank more room to avoid aggressive tightening or even consider easing in the future (especially if growth softens). Indeed, analysts now see room for a possible rate cut later in 2025.

Transmission to actual inflation

While expectations influence wage and price setting, actual inflation in India is also strongly affected by supply side factors—weather, food production, global commodity prices, import costs, and logistical constraints. The moderation in expectations tastes well, but whether it materialises depends on how these exogenous factors evolve.

Some favorable factors that lend support to cooling price pressures include:

• A good monsoon and higher reservoir levels, which reduce agricultural stress and food price volatility.
• Rationalisation or cuts in GST rates that reduce indirect tax burdens on goods and services.
• Improving global commodity dynamics (e.g., softer energy and input costs) easing cost pressures on industry. Some reports cite easing input inflation in recent periods.
• The slack in demand—if growth softens or is less overheated—could dampen inflationary impulses from the demand side.

Hence, the survey’s signals of easing expectations may be validated in observed inflation metrics over the next few quarters, especially if there are no major supply shocks.

Impact on consumer behaviour and growth

From the household side, lower inflation expectations can influence behaviour positively:

• If people believe that price rises will be moderate, they may feel more willing to make discretionary purchases, boosting consumption growth.
• Lower anticipations of inflation may reduce the urge to preemptively buy in advance or stockpile goods, which itself reduces temporary demand pressure.
• In labor negotiations and wage concessions, both employers and workers may adjust expectations downward, mitigating the risk of wage-price spirals.

Thus, the moderation of expectations could act as a tailwind for demand and economic growth, provided the actual inflation environment does not surprise on the upside.

Risks and caveats

While the survey results are encouraging, they must be interpreted with caution. Some important caveats include:

1. Perception vs reality gap
   Historically, household perceptions of inflation tend to overstate actual measured inflation (e.g. CPI). Many households are more responsive to frequently consumed goods (food, fuel) which are more volatile, hence their impressions may skew higher. Academic analysis confirms this: “household inflation perceptions in India are higher than observed inflation … and higher inflation perceptions are significant in explaining persistently higher future inflation expectations.”
2. Heterogeneity and regional variation
   There is significant cross-sectional heterogeneity in expectations. Price pressures vary across states, urban/rural divides, and consumption baskets. The uniform national trend may mask pockets where inflation concerns persist strongly.
3. Survey biases and response errors
   Survey responses may be subject to anchoring, recall biases, or emotional responses to recent price shocks. Some respondents may systematically exaggerate or “anchor” to high inflation memories. In addition, extreme responses (e.g., expecting very high inflation) may distort medians or means.
4. External shocks and global risks
   The outlook is vulnerable to external risks: escalation of global commodity prices, renewed supply chain disruptions (due to geopolitics), weak monsoon or crop failures, or surge in fuel import costs can all reverse the benign trend. The RBI itself flags such risks in its outlook assessments.
5. Lag in survey vs real-time data
   The survey captures expectations at a point in time and may lag fast-moving shifts in commodity markets or exogenous shocks. Actual inflation may surprise households (or vice versa).

Hence, while the easing in inflation expectations is meaningful, it is not a guarantee of smooth disinflation.

Outlook and Conclusion

Putting together the survey signals, prevailing economic conditions, and policy stance, here’s a reasoned view of the inflation outlook in India:

• In the near term (3-6 months), it is plausible that inflation will moderate gradually, aided by stable or easing food prices (thanks to normal monsoon and supply conditions), subdued global input inflation, and restrained demand. The softening in short-term expectations (down to ~8.1 percent) suggests households already anticipate a mild cooling in price pressures.
• Over the next 12 months, inflation may drift closer to RBI’s central forecast (around 2.6 percent for FY 2025-26), assuming no major supply shocks. The easing of one-year expectations to ~8.7 percent is a step in that direction. But this is a gradual process rather than a sharp drop.
• For RBI and policymakers, these expectation trends provide cover to maintain a balanced stance. If disinflation is durable and inflation expectations stay anchored, the RBI may consider more accommodative moves in late 2025 or early 2026—especially if growth cools. Indeed, markets are watching closely for hints of rate cuts.
• That said, vigilance is essential. Any resurgence in global commodity inflation, adverse weather, or supply shocks can quickly unsettle expectations and push actual inflation upward, undoing gains.

In sum, the RBI’s survey indicates that Indian households are gradually lowering their guard on inflation. While perceptions of current inflation remain high, the moderation in future expectations marks a hopeful shift. If policymakers and markets can sustain this momentum—through supply management, prudent fiscal measures, and responsive monetary policy—India may see a period of more stable prices that supports growth and confidence. But the road ahead is not without risks, and the transition will require disciplined policy and favorable global and domestic conditions.