Why inflation undershot expectations

The sustained food disinflation is likely having a salutary impact on expectations

The dramatic and sustained disinflation India has witnessed over the past three years is the most stark manifestation of the macro-economic transformation the economy has undergone. It's also, however, the source of an important macroeconomic puzzle. 

One constant in the past three years has been that actual inflation has consistently undershot expectations. Put differently, forecasts of inflation have consistently over-estimated inflation (or underestimated the disinflation) - thereby making systematic forecast errors. Consider this: Consensus CPI forecasts predicted 7.7 per cent inflation for 2014-15. The actual outturn was dramatically lower at 6 per cent. Yes, oil prices fell later that year,