Rising rural wages offsetting inflation pinch: RBI

Mumbai: High inflation may not be generating the same kind of “unrest” that it used to in the past as rural wages have been rising at a faster clip annually for the past 5 years, Reserve Bank Deputy Governor Subir Gokarn has said.

To tame inflation, the Reserve Bank since March 2010 has announced 13 consecutive rate hikes. However, inflation is still above the RBI’s 5 percent comfort levels.

“Why is high inflation not generating same kind of unrest or outrage that it used to historically?” Gokarn said, adding that “an important answer to this could be that rural wages have actually been rising by about 20 percent annually for the last five years.”

[caption id=“attachment_551409” align=“alignleft” width=“380”]  High inflation may not be generating the same kind of “unrest” that it used to in the past as rural wages have been rising at a faster clip annually for the past 5 years. AFP[/caption]

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Addressing a management event here over the weekend, Gokarn said, it’s “puzzling” to understand why the recent episodes of high inflation, particularly driven by food prices, have not evoked the kind of sharp provocation that had rocked the nation many times in the past 50-60 years.

Earlier, people indulged in “making noise not just individually but collectively in organised fashion,” he said and pointed out that “wages at the very bottom-end of the labour market have been rising at a rate which more than offsets significantly, the rising costs of living.

“What that means is despite high inflation, people are actually feeling that they are better-off,” said Gokarn who heads the monetary policy division at the RBI.

The headline inflation was 7.45 percent in October. After two revisions, the RBI had projected the year-end headline inflation at 7.5 percent. In the beginning of the year, it had pegged inflation at 6.5 percent.

It can be noted that during the past five years, the flagship rural employment guarantee scheme has raised the bar for rural incomes.

Gokarn, however, said this wage increase, though good from the welfare point of view, has not helped the economy.

“If we see such wage increases, it is fantastic from a welfare/development point, but it has to be matched with productivity.

“We have to see that it is matched by proportionate increase in productivity which can help control inflation,” he said, adding this has hurt the inflation situation as people have started to factor-in inflation.

“It starts to build inflation into people’s bargain. This is what we are going to live with (is what the people think),” he said, adding that employers have also grown up to the idea of a 20 per cent jump in wages.

PTI