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LATEST NEWS UPDATES | Rising rural, urban wages aiding inflation: RBI report

Rising rural, urban wages aiding inflation: RBI report

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published Published on Apr 17, 2012   modified Modified on Apr 17, 2012
Inflation
Rising wages in both rural and urban India have contributed to inflation, and managing price levels when wages are rising is key to deriving benefits from higher growth, the Reserve Bank of India has said. 

"The pressure on generalised inflation from sustained increase in wage costs has been one important characteristic of the recent high inflation episode. Wage increases for unskilled labourers in rural areas continue to be at a rate faster than the comparable rate of inflation," the RBI's annual macroeconomic and monetary developments report said. The wholesale price-based index inflation for March dipped to 6.89%, down from 6.95%. 

"Even if I don't agree with the Reserve Bank of India, it is true that all public sector employees' dearness allowances go up in line with inflation," said Saugata Bhattacharya, chief economist at Axis Bank. "Wage price spiral is the most dangerous part of inflation. Government interventions and subventions have contributed to increase in inflations." 

"Outside the public sector realm, corporate India is prepared to give a salary hike on account of increased productivity that has nothing to do with inflation. This is not accounted for anywhere. On a broader macroeconomic level, people have also lost jobs and have not got fresh jobs," said Bhattacharya. 

The RBI has seen significant divergence in wage rise and inflation across major states. States such as Manipur, Rajasthan, Andhra Pradesh, Karnataka, Himachal Pradesh and Bihar have seen significant rise in both wage and inflation. "A host of factors could explain the increase in wages, including high inflation, withdrawal of the labour force with increased participation in education and government schemes such as Mahatma Gandhi National Rural Employment Guarantee Act," said the RBI report. 

"There is merit in this argument but inflation is not solely led by rise in salaries. We expect salaries to increase by about 12% to 15% in the organised sector in the calendar year 2012. This range is not higher than last year's," said K Pandiarajan, founder, Ma Foi Management Consultants. 

"In the unorganised sector, we have very little surveying done. Money supply, government borrowing, rising commodity prices are also contributors," said Pandiarajan. "Wage inflation is generally linked to food inflation because the dearness allowance is adjusted in line. Political factors like elections have also lead to an increase in rural income through the NREGA," said Rupa Rege, chief economist Bank of Baroda.


The Economic Times, 17 April, 2012, http://economictimes.indiatimes.com/news/economy/indicators/rising-rural-urban-wages-aiding-inflation-rbi-report/articleshow/12696442.cms


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