Inflation to cross 13% by Dec: RBI

Urban households expect inflationary pressure to sustain through 2011 and feel there may not be any softening of food prices, an RBI survey shows.

While year end 2011 household inflation is expected to be 13.1 per cent, up from the perceived 11.8 per cent in December 2010, daily-wage workers and housewives expected higher inflation rates to continue.

As per the 'Inflation Expectations Survey of Households: December 2010 (Round 22)' conducted by the apex bank, the rise will be mainly on account of movement in food prices.

"Households expect inflation to rise further by... 130 basis points during... next year (13.1 per cent) from the perceived current rate of 11.8 per cent," it said. While the housewives surveyed said they expect year-end 2011 inflation to be 13.2 per cent, daily wage workers said it would be 13.5 per cent.

On the other hand, financial sector employees and self-employed projected inflation to be 12.4 per cent and 13 per cent, respectively, by year-end.

"Households' expectations of general price rise were mainly influenced by movements in food prices," the survey said.

Overall inflation, as per the Wholesale Price Index (WPI) has been above 8 per cent since February 2010. Food inflation also remained in double-digits for most of 2011, barring a few isolated weeks.

During the October-December period of 2010, the WPI hovered between 8.08 per cent and 9.41 per cent. Besides, retail inflation for industrial workers, measured by the Consumer Price Index (CPI) stood at between 8.33 per cent and 9.7 per cent during the quarter.

"In the current survey round, household inflation expectations are higher than the official inflation rates.

It can be seen that even though the official indicators are moving in the downward direction, expectations are showing an upward swing," the survey said.

RBI found that 98.6 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 96.5 per cent respondents had given such a view.

"In case of one-year ahead price expectations, the percentage of respondents expecting food price increase has gone up. A similar trend is observed for non-food products as well," the survey said. While 91.7 per cent respondents said they expects food prices to rise during 2011, 83.5 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 services, the percentage of households expecting prices to rise in 2011 has increased during the 22nd survey as against the previous one. The survey was conducted in October-December 2010 and covered 4,000 urban households across 12 cities for the January-March 2011 quarter and the 2011 calendar year.

The latest survey is the 22nd conducted by RBI to find inflation expectations of Indian households. RBI has been conducting such surveys on a quarterly basis since 2005.