The median inflation expectation among senior citizens is 9.3 per cent than the overall 8.2 per cent, according to the Reserve Bank of India’s (RBI) bi-monthly “Households’ Inflation Expectations Survey”, which records consumption patterns and inflation expectations. 

This data is instrumental in shaping RBI’s inflation-related policy decisions. The survey was conducted in 19 major cities and interviewed 6,091 people from July 2 to 11. The average perception of current inflation rose by 20 basis points, a significant increase, from 8.0 per cent in May 2024 to 8.2 per cent in July 2024 across all major product groups.

Also, while the overall one-year median inflation expectation is 10.1 per cent, retirees expect it to reach 10.6 per cent, followed by finance-sector employees and self-employed at 10.5 per cent. Age-wise, people between 55 and 60 have the highest inflation expectation at 10.6 per cent, and those aged between 60 and above expect it to be 10.4 per cent after a year. 

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So, does the inflation perception affect the retirement corpus or the financial behaviour of the retirees and near-retirees? This is an inevitable concern because a higher inflation rate can erode the value of savings and investments, potentially impacting the retirement corpus. It can also influence financial behaviour, leading to changes in spending patterns and investment decisions.

How Does Inflation Expectation Impact Senior Citizens?

Inflation perception could influence their purchasing and spending decisions and financial planning, impacting their retirement corpus.    

Murthy Nagarajan, Head-Fixed Income, Tata Asset Management, says, “If people expect prices to rise fast, they may pre-pone their buying and conversely if people expect that inflation will be low they may save, which can be used for the productive needs of the economy. Higher inflation expectation could lead to RBI following a tight monetary policy to control people spending habits”.

Kavita Bothra, Partner, Primassure LLP, a wealth management firm, says, “For many retirees, the thought of inflation creeping up brings a sense of uncertainty. Knowing that prices may rise in the future can lead to heightened anxiety. Retirees might start worrying more about whether their savings will be enough to cover their needs and whether they might have to make sacrifices they hadn’t planned for. They may find themselves cutting back on discretionary spending—dining out less, postponing trips, or hesitating before making larger purchases—fearing that what’s affordable today may become a strain tomorrow”. 

A higher inflation expectation may lead senior citizens to prioritise essentials over luxuries and maintain a safety net. This shift can alter the lifestyle they had envisioned, leading to fewer indulgences or experiences that bring joy, adds she.

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Can Inflation Expectations Affect Retirement Corpus?

People usually base their expectations on past inflation. So, if the inflation had been higher in the past, they would likely expect it to go higher. 

Bothra explains, “These expectations can influence not just the economy but also the way we approach our day-to-day finances. For retirees, the stakes feel particularly high. They’ve already made their savings and investment choices, and now, there’s the added pressure of ensuring that their nest egg lasts as long as you do. It’s not just about having enough—it’s about maintaining the lifestyle they’ve earned and protecting their financial independence”.

Before inflation erodes the nest egg’s value, Bothra suggests investors reassess their financial plan, adjust spending, and explore safe and inflation-protected investments to navigate the uncertainty.

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However, higher interest rates from guaranteed income instruments can be a huge relief in a high-inflation scenario. In its last MPC meeting, RBI kept the repo rate unchanged at 6.50 per cent for the ninth time in a row, underscoring that it still wants to keep inflation in check.