This paper examines the usefulness of survey based measures of inflation expectations to predict inflation using hybrid versions of New Keynesian Phillips Curve (NKPC). While both 3-months ahead and 1-year ahead inflation expectations of households emerge statistically significant in explaining and predicting inflation in India, effectively they work as substitutes of backward looking expectations given that household expectations are found to be largely adaptive. Unlike in other countries, this paper does not find much evidence on flattening of the Phillips curve. When transmission of inflation expectations to inflation is assessed through wage dynamics, it is found that inflation expectations of households influence growth in staff costs in services sector activities, but not in manufacturing. No robust evidence is found, however, on expectations induced wage pressures influencing CPI inflation.

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