Does Inflation Targeting Anchor Inflation Expectations in India? Evidences from Surveys of Household and Professional Forecasters

Abstract

This study examines whether Inflation Targeting (IT) anchors household and professional forecasters expectations in India. It investigates whether food and non-food inflation affect anchoring inflation expectations differently. Primarily, the results indicate significant decreases in the level and variability of expectations. Further, it provides evidence of successful anchoring for professional forecasters and household expectations. However, it also found food inflation assists anchoring of expectations, while the non-food inflation doesn’t. The results suggest the central bank to emphasize more on non-food inflation for better anchoring prospects. Additionally, the study identifies food inflation as the primary contributor to headline inflation variability.