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RBI to study inflation expectations

The RBI Governor said that as prices affect people, it is essential to study inflation expectations to gauge the sentiments of the common man.

business Updated: Mar 16, 2007 20:37 IST

In a bid to keep a tab on prices of essential commodities, the Reserve Bank will for the first time conduct a survey of inflation expectations in the country soon.

Announcing this, RBI Governor YV Reddy on Friday said that as prices affect people, it was important to study inflation expectations to gauge the sentiments of the common man.

Reddy, however, did not elaborate on the subject but bankers said that among the factors that generally influence inflation are people's expectations about price rise. Central banks in the developed world routinely conduct inflation expectation surveys. Though such studies are not foolproof, it will certainly act as an additional tool to monitor people's expectations on prices. Reddy said there were not many professional forecasters and the RBI would also make use of data available from the financial markets for the purpose.

Earlier, Prof Axel Weber, President of the Deutsche Bundesbank, who delivered an address at the RBI headquarters here on monetary policy strategy in Europe and made reference to the concept, said that consumers could more easily give their expectation about prices of goods they consume daily but not about products which they do not use frequently.

Weber said that there has been a strong recovery in the world economy with credit to the private sector growing at record level. There is ample liquidity in the system that entails risk of rising inflation, he observed.