Ordinary people do not track price indices—they gauge inflation by what happens to their daily expenses. When households are asked to assign a number to current or future inflation, their responses are shaped by recent movements in the prices of everyday items.
This creates a gap between “felt” inflation—the inflation households perceive—and official inflation measured by the Consumer Price Index (CPI).
Some have argued that this divergence was partly due to an outdated price index. But the new CPI, with improved coverage, updated component weights and a 2024 base year, has not materially narrowed the gap. Households continue to estimate inflation 4–6% higher than the official rate.
This persistent upward bias is not unique to India. A 2025 BIS survey showed that short-term inflation expectations of households exceed actual inflation across both emerging and . Policymakers therefore focus less on the absolute level of perceived inflation and more on its direction of change.
War-led anxiety
The latest RBI household survey of inflation expectations (IES), conducted between 25 February and 10 March, offers early insights into the impact of the West Asia war.
Perceptions of current inflation are rising after trending downward for over three years. Future expectations have climbed as well: between November 2025 and March 2026, the median three-month-ahead inflation expectation rose from 7.6% to 8.5%, while the one-year-ahead estimate increased from 8% to 8.8%.
Clearly, households are anxious and anticipate further price increases.
This kind of is not captured in official price statistics—note that the March inflation print was only 3.4%. One reason is that administered prices have cushioned households from acute price hikes.
The price of domestic cooking gas has not been raised as much as commercial cooking gas, price hikes in domestic air tickets have been capped, and excise duties on petrol and diesel have been slashed to protect retail prices.
However, as second-order impacts have started showing up—migrant labour is returning to villages due to higher living costs, restaurants are trimming menus to save on cooking gas, and more people are working from home—households start preparing for higher inflation scenarios.
Worse among vulnerable
The lower and more uncertain the income, the greater the inflation anxiety, and the higher inflation is perceived to be.
Survey data suggests that this is already happening: respondents with lower income security report higher felt inflation and a bigger jump in felt inflation since the war. For instance, daily wage workers perceived inflation to be 8.5% in March 2026, up from 7.1 in January 2026; whereas financial sector employees, who are likely better paid and better informed, upped their current inflation perception only slightly from 6.1% to 6.2%.
Retired persons, who rely on savings, are understandably the most anxious: their felt inflation jumped from 7% to 8.6% after the war broke out.
When inflation feels high, households quickly raise inflation expectations, especially if the underlying causes of inflation are still active. Given the uncertainties around the war, households know that cannot stay down for too long; in fact, experience has taught them that a price hike is possible after state elections are over.
The distribution of survey responses suggests that inflation expectations are being modified to factor in this possibility. In March 2026, about 27% of respondents thought inflation was in RBI’s 4-6% target band, down from 31% in November 2025. At the same time, 34% believed inflation was in double digits. Future views of inflation are even more pessimistic: about 40-45% of respondents expect inflation to be in double digits in the future, and a startling 15% expect inflation to be over 16% a year from now.
Contrast this with the RBI outlook, which projects an average headline CPI inflation of 4.6% in 2026-27; or the survey of professional forecasters, which predicts a median inflation rate of 4.5% for the same period.
Food and fuel influence
Household inflation perceptions are heavily influenced by food and fuel prices. Although their weight in the average is declining, their psychological importance remains high.
The relationship is asymmetric: a rise in food or fuel prices quickly pushes up inflation perceptions, but it takes a prolonged decline to bring them down.
Indeed, the fall in felt inflation between November 2024 and December 2025 coincided with declining food prices and subdued fuel inflation.
Policy limits
Monetary policy has limited control over felt inflation because food and fuel prices are usually driven by supply-side factors. Indeed, central banks often look through food and fuel price volatility, hoping it will be transitory, even though households absorb it in building their inflation views.
This creates a dissonance between household perceptions and official forecasts. If inflation is felt as being higher than reported, household spending and saving decisions will not align with .
For instance, fear of higher food prices could lead to panic buying and stockpiling of essential food items, notwithstanding repeated assurances by the government about having adequate food grain buffers. That’s the bad news.
The good news is that RBI is aware of the devastating impact of food and fuel inflation, especially for low-income households. In fact, in last week’s post-policy press conference, the RBI governor made it clear that every component of inflation mattered and was being monitored. Central banks cannot stop wars, but the RBI may be doing its bit to ease inflation anxiety through reassurance and clear communication.
The author is an independent writer in economics and finance.