RBI's Raghuram Rajan Finds Falling Inflation a Hard Sell for Consumers

Food prices, which have the biggest weighting in the consumer price index, typically rise as the summer heat cranks up in March, and thereafter largely depend on how kind the monsoon rains are to farmers.

The RBI expects inflation in 2015 to hover around 6 percent – its target for January 2016 – and sees risks to the target evenly balanced.

Retail price inflation data is due to be released on Friday. A Reuters poll of analysts forecast that inflation rose 4.5 percent from a year ago in November, down from 5.5 percent in October and the lowest since the data series was introduced in 2012.

The RBI will release its next quarterly survey of inflation expectations at the end of this month. What matters most, according to Rajan, is not what people think inflation will be, but how much their views are changing. Last week, the RBI said expectations for inflation were falling.

The last survey in September showed more than 70 percent of households had expected consumer inflation at double digits in the three months and year-ahead periods.

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“While inflation expectations have started easing, the pace of easing is very slow,” said Rupa Rege Nitsure, chief economist for Bank of Baroda in Mumbai.