Difference between simple and compound.

The Reserve Bank of India (RBI) conducts an Inflation Expectation Survey of Households (IESH) every 2 months. "Households overestimated current as well as future inflation in each survey," wrote Deepa Vasudevan. "Even in normal years, inflation expectations cluster around 10-11%, much beyond the RBI target of 4%." "Households respond by increasing precautionary savings and cutting back on non-essential spending." Are people fools? Since May 2014, when this government first grabbed power, inflation has been above the RBI's mandate of 4%, set by the government (TOI). It fell to below 4% in November 2016 because of demonetization of Rs 1000 and Rs 500 banknotes with a 4 hour notice on 8 November. wikipedia. Inflation stayed below 4% till November 2017, rose above 4% till August 2018 and then dropped below 4% till October 2019. rateinflation.com. That may be because economic growth was falling after the ill-advised demonetization, from 8.26% in 2016 to 3.74% in 2019. Forbes.  Inflation has been averaging above 6% since then. To become a developed country by 2047 India will have to grow at 8% per annum over the next 25 years, wrote Shishir Gupta & Rishita Sachdeva. "Going by historical evidence, we need to invest about 4.5% to 5% of gross domestic product (GDP) to clock 1% GDP growth; thus realising 8% growth will require investments worth 35%-40% of GDP. Close to 90% of this capital requirement will need to be financed domestically, and a big chunk of it through the household sector. Hence, one of the key pivots for achieving faster growth is for households to save more." Household savings actually fell by 7% from 25% of GDP in 2010 to 18% in 2017, but may have risen marginally. Household consumption has fallen from 87.38% of GDP to 59.56% in 2021. theglobaleconomy.com. Hence, to achieve investments worth 40% of GDP households have to consume more, which will increase demand, as well as save more to finance investments. Households will reduce non-essential spending if inflation is high, and may be forced to run down savings to pay for daily expenditure. So, GDP growth depends on keeping inflation under control. Inflation is expected to fall to 4% in May 2023. BQ. "India's GDP has crossed USD 3.5 trillion in 2022 and will be the fastest-growing G20 economy over the next few years, but reforms and policy barriers could hamper investment, Moody's said." HT. "Real GDP in 2018-19 - the financial year before the pandemic - was at $139.9 trillion. In 2022-23, four years later, the Indian economy is expected to be Rs 160 trillion. This implies an economic growth of 3.4% per year on average over those four years," wrote Vivek Kaul. "The World Bank on Tuesday (yesterday) raised its 2023 global forecast saying that the US and other major economies have proven more resilient than forecast. But it lowered India's growth outlook to 6.3% in FY2023/24 (April-March), a 0.3 percentage point downward revision from January." ET. The RBI looks at individual inflation numbers while people compound it. That's why their expectation of inflation is so much higher. And so, they don't trust the RBI.