Milton Friedman famously said, 'Inflation is taxation without legislation.' The impact of inflation — the overall increase in the prices in an economy — is felt by everyone. High inflation adversely affects the poor. Individuals, therefore, form expectations about how prices will behave in the future to take precautions. If they anticipate high inflation, they negotiate wages or rents to compensate against a potential fall in their purchasing power. Increased wages increase the cost of production, making expectations self-fulfilling and, therefore, playing a pivotal role in determining inflation.
The RBI released the Inflation Expectations Survey of Households (IESH) for March 2022 on April 8. The results on the inflation expectations are based on responses from around 6,000 urban households surveyed in 19 major cities. The release coincides with the completion of two years from the period of the first lockdown in March 2020. The last two years of surveys, therefore, capture individuals' perceptions during the three waves of COVID-19. The survey results present interesting behavioural insights for public policy, particularly from a gender perspective.
