Hope Fading, Prices Rising

The Reserve Bank of India (RBI) recently released the results of its latest forward-looking surveys (May 2026 Round). Based on the feedback received from respondents, the survey results provide important insights with respect to consumer confidence — both urban and rural — inflationary expectations and economic growth expectations from professional forecasters.

Urban Consumer Confidence – A third successive decline

Consumer confidence for the current period declined for the third successive round, with the Current Situation Index (CSI) falling sharply to 90.7 from 95.7 in the previous round. A value below 100 indicates a state of pessimism, and on this measure, urban households are now firmly in negative territory on their assessment of present conditions.

The deterioration is broad-based. Perceptions on the general economic situation worsened considerably — the net response on economic conditions fell by 7.9 points to -16.5, as nearly 48% of respondents felt conditions had worsened compared to a year ago. Sentiment on employment also deteriorated sharply, with the net response on employment falling to -14.4 from -9.1 in the March 2026 round. Income perceptions barely stayed positive, with a net response of just 0.9.

The forward-looking Future Expectations Index (FEI) also weakened, dropping 1.5 points to 118.7 — the lowest reading since September 2023. While the index remains in optimistic territory (above 100), the trajectory is concerning. Households have revised down their expectations on economic situation, employment, income and spending across both time horizons. The waning of confidence is primarily driven by ebbed sentiment on discretionary expenditure, with non-essential spending expectations falling sharply: the net response on future non-essential spending collapsed to 15.9 from 21.1 in the previous round.

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Rural Consumer Confidence – Similarly Strained

Rural confidence tells a similar story. The Current Situation Index (CSI) for rural households fell further to 95.2, declining for the second successive round from a recent peak of 100.9 in September 2025 — a fall of nearly 6 points over three survey rounds. Current perceptions on the economic situation moved into negative territory (net response of -2.5), and employment sentiment also turned negative (-1.2). Income perceptions remain weak at -5.8.

The Future Expectations Index (FEI) for rural households fell sharply to 119.3 from 125.1 in March 2026, with worsening conditions across all parameters except prices. Forward expectations on income fell to a net response of 38.9, down from 45.7. Spending expectations also softened notably, with non-essential spending expectations falling to a net response of just 42.6, from 59.5 in the previous round — a significant pullback suggesting rural households are tightening their belt.​

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Household Inflation Expectations – Rising Sharply

Urban households’ current median inflation perception jumped by 60 basis points (bps) to 7.8% compared to the previous round. Inflation expectations for the next three months and one year both edged up by 80 bps and 50 bps respectively, reaching 9.3% for both horizons. The proportion of respondents anticipating higher prices inched up across all product categories, with food products, non-food products and housing all seeing increased price pressure expectations.

The rural picture is consistent. Median inflation perception among rural households rose by 30 bps to 5.9%, and one-year-ahead inflation expectations climbed 40 bps to 7.2%. Across age and occupation groups, the upward drift in inflation expectations is widespread — particularly notable among retired persons, who now expect inflation of 8.6% over the next year.

Professional Forecasters – GDP revised down, inflation revised up

GDP: Real GDP is now expected to grow at 6.5% in FY27, revised down by 40 bps from the previous round. For FY28, the forecast stands at 6.9%, modestly lower by 10 bps. Forecasters have assigned the highest probability to GDP growth in the 6.5-6.9% range for FY27, while for FY28, the modal outcome is also the same band. Annual growth in real PFCE and GFCF for FY27 are expected at 6.8% and 6.5% respectively, with GFCF revised down by 60 bps — a signal of tempered capital formation expectations.

Real GVA growth for FY27 is pegged at 6.6%, with services (7.7%) and industry (6.8%) doing the heavy lifting, while agriculture is expected to contribute a modest 2.4%.

Inflation: This is where the story turns uncomfortable. Annual headline CPI inflation is expected at 4.9% for FY27 and 4.5% for FY28. The quarterly path, however, reveals a more concerning picture: CPI is forecast at 4.0% in Q1 FY27, rising to 4.9% in Q2, accelerating to 5.5% in Q3, and easing only marginally to 5.2% in Q4. Core CPI (excluding food and fuel) is expected to rise from 3.9% in Q1 to between 4.4-4.7% through the rest of the year.

WPI inflation forecasts have been revised up sharply. WPI All Commodities is projected at 8.9% in Q1 FY27, 9.0% in Q2, before moderating to 7.9% in Q3 and 6.5% in Q4.

External Sector: Merchandise exports are expected to grow 5.0% in FY27 and 4.7% in FY28 in US dollar terms. Imports, however, are forecast to grow much faster at 10.5% in FY27, before normalizing to 4.6% in FY28. This asymmetry pushes the current account deficit (CAD) to 2.1% of GDP in FY27 — a significant deterioration of 60 bps from the previous round’s estimate — narrowing to 1.2% in FY28. The median USD/INR rate is pegged at around 95.4-96.6 across the quarters of FY27, with crude oil (Indian basket) expected in the $85-105/barrel range across quarters.

The takeaway

Taken together, the May 2026 round of RBI’s surveys paints a picture of an economy that is growing at a reasonable but moderating pace, against a backdrop of rising inflation pressures and rapidly eroding consumer confidence — across both urban and rural India.

The triple squeeze is hard to miss: households feel worse off today than a year ago, they expect prices to be significantly higher a year from now, and they are pulling back on discretionary spending. Professional forecasters have simultaneously marked down growth and marked up inflation. The widening CAD and sharp upward revision in WPI forecasts add to the headwinds.

Hope was the dominant sentiment in previous survey rounds. In this one, it is fading. The optimism that characterized forward expectations — buoyant FEI readings, resilient income outlook, strong discretionary spending intentions — is giving way to something more sober. If the quarterly CPI trajectory plays out as forecast, with inflation touching 5.5% in Q3 FY27, the RBI will face an uncomfortable policy tradeoff, even as growth edges lower.

For investors, the signposts are clear enough: demand recovery may disappoint consensus, margin pressures from higher input costs are likely to persist, and the consumer staples vs discretionary divide may widen further. The surveys may not move markets directly, but they sharpen the lens through which to read the earnings season ahead.