Forget CPI: Vada-pav inflation, the price-rise in small things, is going through the roof

Wednesday consumer price index (CPI) number came in at 8.79 percent, and policy-makers think they have won half the battle against retail inflation. Unfortunately, while the CPI measures the broad trajectory of retail inflation, it is not the only one that bites the aam aadmi in the butt - on a daily basis.

What bites is what we should call “the inflation of small things”, the kind of stuff we pay for daily, weekly, or monthly in urban India. By “small things” we mean the price we pay for the “cutting chai” we consume from the roadside vendor in-between sessions of work, the vada-pav or shingaras we munch at suburban stations on the way home, the clothes we send to the istriwala for ironing every day, the movie tickets we buy on weekends for friends and family.

Take a guess on what the “the inflation of small things”, if compiled into an index, will look like?

Hold your breath. It is not just into double-digits. It ranges anywhere from 15-80 percent. Cutting chai (a rough-and-ready quantum of tea split into two glasses, or a little more than half a cup) used to cost Rs 4 less than three years ago in Mumbai. Today it costs Rs 6-7 - that’s an average inflation rate of 16-25 percent per annum (total inflation divided by number of years).

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Or take Mumbai’s favourite vada-pav. In 2011, you could savour one for around Rs 5 from the streetside. Today it will set you back by Rs 10. That’s a 100 percent rise in three years - or 33 percent annual average.

The inflation of small goods extends to domestic services too. Labour costs have shot through the roof. Mumbai maids now charge 100-120 percent more per job compared to what they did in 2011. If they did one job (say jhadu-pocha) for Rs 200-300 earlier, depending on where you stay, now it is Rs 400-700. Again a 100-140 percent jump - or 33-44 percent a year.

Anything to do with cars costs more. The car cleaner earlier charged Rs 250-300 a month so that you don’t have crow-crap on the bonnet. Now it’s Rs 500 and heading for Rs 600 in most parts of central Mumbai - and not much lower in the distant suburbs.

Driver inflation has been a tad lower. Monthly salaries have risen from around Rs 9,000-10,000 to Rs 12,500-14,000, excluding overtime. If you drive costlier cars, you pay more. No self-respecting Merc driver will accept less than Rs 15,000. Not that Merc drivers won’t come for less, but you have to calculate this saving against the potential cost of having a careless or greenhorn driver who thinks he ought to have been in Formula 1, and tries overtaking from the Left and runs into a lamp-post. All with your Merc.

Net-net: The inflation rate for drivers thus works out to around 12-13 percent per annum.

Your roadside istriwala is also having a ball - depending on where he is located. In the tonier parts of Mumbai, it could be Rs 5-10 per piece. In the less upmarket parts, it could be Rs 4-5 apiece. This compares with Rs 2-3 in most parts around 2011. We will not try calculating the percentage change, but in some parts it is more than 100 percent per annum (average). Time for Iron Man 4, this time with the humble istriwala as hero-villain?

We can go on and on, but to put it simply, while CPI inflation may be coming down, the ‘inflation of small things’ can no longer be called just “inflation”. It is hyperinflation.

The general public may hyperventilate on prices in general, but it has not realised that the day-to-day inflation it pays for is even higher than what the CPI suggests.

Of course, we tend to take note of payments to the people we employ more than the small bits we pay directly to our chaiwala, for the former is paid monthly, in a chunk, while the chai is paid for in little sums every now and then.

“I was paying Rs 200 to my maid three years back. Today, I am paying Rs 400,” fumes Shobhana (name changed), a middle-class home-maker living in Thane, a Mumbai satellite city to the north-east. Domestic maids are in the unorganised sector and their services will never be part of the indexes.

Shobhana’s husband, a media professional, was laid off two years back and had to take up a job at a lower salary. Last year, his salary increase has also been subdued, she complains.

Do not tell her that inflation, according to the two indexes of the government (consumer price index and wholesale) are trending down now. She may throw a fit, for she is reeling under the high inflation of small goods and services.

Laundry man Keshavan Nair also frets about wages. “I am paying my ironing staff Rs 8,975 per month. Three years ago, he was being paid Rs 5,500,” says Nair, who owns a laundry business in central Mumbai. He charges Rs 55-80 for washing and ironing a shirt or trouser from customers. He complains that electricity bills have gone up from about Rs 1,300 to Rs 3,000 now. His drycleaner charges taking Rs 30 per shirt. It was just Rs 15 three years ago. And he is not even in a position to charge more because there are local dhobis who deliver these services for just Rs 30-40 apiece.

(Table created with Datawrapper. Prices may vary from location to location within a city and from city to city. These are indicative of various areas in Mumbai. The percentages are a simple average and not CAGR.)

The moot point: why is the inflation of small things so much higher than the sarkari CPI?

Several reasons why.

First, of course, the CPI does not even measure these things.

Second, the ticket-sizes of everyday things are so small that even we do not notice. How many of us have stopped drinking chai on the street because the price moved up from Rs 5 to Rs 6 (and now Rs 7 in some places) over the last six months. Rs 6-7 a pop does not pinch us - so we don’t notice.

Third, high inflation has driven lower denominations of currency out. The government has already phased 25 paise coins, and 50 paise ones are waiting for the axe to fall. Taxi-drivers don’t bother returning change below Re 1. Hard-boiled menthol unguents such as Halls or Mentos, which earlier cost 50 paise apiece, have risen to Re 1 - or sold in pairs at a minimum of Re 1 for two. Or they are sold only in bulk so that 50 paise becomes irrelevant. Pricing thus tends to rise in blocks of Re 1. A hard-boiled menthol suck thus moves 100 percent in one go when prices rise from 50 paise to Re 1 is difficult to notice. We don’t notice the small change. Items with small ticket prices tend to have a higher percentage change due to the base effect.

Fourth, there is the inflation impact of bribes and rents. Over the last three years, street vendors’ pay-outs as bribes to various hafta collectors (the police, the municipal inspectors) have shot up more than average consumer inflation. Even Udipi restaurants are now jacking up rates: Idlis cost Rs 20 a plate now cost Rs 30-40 - a 50-100 percent jump in less than a year as rents are rising in well-located places.

Fifth, there is the human angle. We may grumble, but we don’t ultimately grudge the relatively poor chaiwala his higher-priced offerings because we know he is not rolling in the stuff.

Sixth, rural wage inflation has pushed up urban wages. Hence any service with a high labour content is turning costlier than ever.

The inflation of small things is driving a hole through our pockets - but we are yet to realise it.

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