INDIA’S central bank governor Raghuram Rajan may have reshaped monetary policy and brought down consumer inflation to the lowest in years, but convincing people like housewife Shaila Pai that prices are under control is proving a tough challenge.

    Entrenched expectations of high inflation in India are feeding into higher wages and other prices, which could tie Rajan’s hands even as he faces growing pressure to cut interest rates for a fourth time this year to help a patchy economy.

    Pai, a mother of two in Mumbai, says she has yet to feel any benefit from official data showing inflation is easing. Her living costs are as high as they have ever been and the family is cutting down on travel, eating out and personal spending.

    “The biggest part of our household expenses goes towards education, food and medicines, and all of them are very expensive. We can’t cut corners much there,” she said.

    “I expect hospital, food, education costs will continue to rise in the double digits.”

    She is not alone. A survey by the Reserve Bank of India (RBI) last week showed households expect consumer inflation to hit 10.1 percent within three months, almost double the current 5.4 percent and a level not seen since late 2013.

    At its latest policy review last week, the central bank kept rates steady but held out the prospect of another easing after cutting the policy rate by three-quarters of a percentage point so far this year.

    “Price pressures are building up and these are sticky,” said a senior policymaker familiar with the RBI’s thinking. “We are cautious. We have to see whether core inflation will feed into headline numbers or not.”

    Since becoming governor in September 2013, Rajan has refocused policy on consumer inflation instead of wholesale prices. Earlier this year, the government and RBI agreed on adopting a target to keep inflation between 2 to 6 percent.

    While that looks on track for now, core inflation, which excludes volatile fuel and food prices, has risen for the past six months, and reached around 5 percent in June.

    A 16.2 percent surge in urban wages in the January-March quarter, the biggest increase in 11 quarters, is a key driver of core inflation.

    “In everybody’s mind, inflation is hovering at 8 percent,” said Anandorup Ghose, a partner and head of rewards at Aon Hewitt, a global human resource solutions company. “For firms to give salary increases less than 10-10.5 percent, it almost seems like you are not giving a real pay increase compared to inflation.”(SD-Agencies)