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Monday, 30 May 2011 00:00
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Though food inflation has risen by one percentage point, to 8.5% in the week-ended May 14, 2011, this is substantially below the peak levels of 21.4% touched in May last year. And if the monsoons are good as predicted, food inflation is likely to come down to less than half the 15% levels reached in each of the last two years. Even so, it is probably higher than what politicians would like, so you can expect some more pressure on RBI to hike rates once again. It’s worth keeping in mind, however, that no study of inflation is complete without studying what’s happening to income levels—if RBI’s rate-hikes start affecting growth, without being able to dampen inflation, it’ll be a double-whammy. Since the NSS thick round data for 2009-10 won’t be out for another 6-8 months, it’s difficult to know what’s happened to household incomes. It is, however, difficult to see how, unless there’s been a sharp rise in inequality levels, real incomes (that’s nominal incomes minus inflation) have not gone up for even the poorest fifth of the population—during 1994-95 to 2005, when real net national product rose by 6.2% per annum, real incomes rose 4.5% for the lowest quintile according to NCAER-CMCR data. With economic growth picking up since, logically, this growth should be higher even with higher inflation levels.

 

In the absence of NSS data on consumption, even though it understates consumption in the economy, it’s best to look for proxies. Data on strikes and lockouts show that disruption in production due to workers unrest has touched new lows, with the number of strikes and lockouts dipping to 45 between January and March 2011 as compared to 70 in the corresponding period of the previous year, and mandays lost have come down from 4.2 lakh to 2.7 lakh—if inflation wasn’t accompanied by higher wage increases, chances are there’d be more strikes. Government employees are protected by their DA, but ASI data for units registered under the Factories Act shows wages went up by 17.6% in 2006-07, 15.2% in 2007-08 and 17.1% in 2008-09 (data after this is unavailable)—total emoluments went up by 19.2%, 18.8% and 22.7% in the last three years. When politicians and RBI are examining inflation data and charting policy action, they’d do well to keep the income side of things in mind as well.

 

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