How do you modify hopes and fears?

The retail inflation rate in India has fallen from highs of over 12% in 2010 to 5.77% in June of this year, but 'inflation expectations' of ordinary people still remain high. Reserve Bank Governor, Raghuram Rajan has referred to inflation expectations in each of his policy statements and did so again in his last statement, last Tuesday, before he steps down. He kept base rate steady at 6.5%. This maybe one of the reasons why he has been treated so shabbily by politicians. What does it matter what people think when figures show that inflation is under control? It does matter. If people expect prices to rise at higher rate than interest paid by banks, as was happening under Congress rule, they will try to hedge by buying physical assets, like real estate or gold. How does the RBI know what people expect? They ask 5,000 people what their expectations are, of which 30% are housewives, 20% are self-employed and 15% are other employees. The RBI does not explain how they choose their sample, what questions they ask or how informed the people are. The survey is carried out every quarter so there maybe information bias, in that people will be influenced by current changes in prices, rather than over one year. Also, few people can make sense of year-on-year or the difference between GDP or Gross Value Added. Rajan has brought down inflation expectation from over 14% in 2013 to around 9% today but it was lower in December 2014. It maybe because interest rate was 8% in 2014, giving us a real interest rate of around 2%, while it is around 1% at present. Economists at IMF suggest that the fall in inflation in India is not so much because of the fall in the international price of crude, because that was not passed on to customers, but because of a fall in inflation expectations and lower minimum support prices for agricultural products. So Rajan has been partly right. But it is not just the stupid people, as politicians complain. 10 year bond yield in India is at 7.11% showing that markets do expect inflation to remain sticky. Yields on over $13 trillion worth of government bonds in the world have turned negative. Even after Brexit, yields on short term bonds in the UK turned negative. Not only in India, people in the US also estimate inflation to be much higher than it actually is. Politicians may sneer at us as ill-informed but economists are also unable to suggest remedies to the present lack of global growth. The sheer volume of data maybe causing a 'recency bias' in their analyses. Economists are studying human behavior to understand what advertising agencies have known for a long time. Perhaps, they have not understood the most important fact, which is that an economy is not just numbers, but is about people. And expectations are based on hopes and fears. You cannot quantify that.