Advertisement

HindustanTimes Wed,03 Sep 2014

Inflation’s new normal

HT Correspondent, Hindustan Times   August 03, 2012
First Published: 22:27 IST(3/8/2012) | Last Updated: 02:12 IST(4/8/2012)

Time was when price rise was about food staples like onions. This time, the causes of the tears lie elsewhere.
Consider what Heena Sardana has to say.
“Shopping  and  eating out are the two biggest casualties of the inflation. Also,  I  have started spending less on cosmetics and parlours as my pocket money is not adequate,” says the Delhi college student.
It’s not just soaring food prices that are hurting your pocket. Charges for several services have steadily gone up over the last few months. 
Let us call it lifestyle inflation, shall we?
Payments for utilities such as telephone services and electricity have surged significantly and a visit to to a beauty parlour or a salon is more expensive now than, say, a year ago. http://www.hindustantimes.com/Images/Popup/2012/8/04-08-12-biz-01.jpgPumping iron at the gym, or a weekly visit to the movies at a multiplex also cost more.
There is a cascading effect.  A free-falling rupee, higher service taxes, rising borrowing costs, rentals and utility bills have collectively prompted restaurants to raise meal rates and gyms to increase fees.
All these mirror the constraints of an economy caught in a peculiar flux, which Reserve Bank of India (RBI) governor D Subbarao said recently.
“Twenty years ago when I had a thick mop of hair, I used to pay R 25 for a haircut. Ten years ago, after my hair started thinning, I was paying R 50 for a haircut. And now, when I have virtually no hair left, I am paying R 150 for a hair cut. I struggle to determine how much of that is inflation and how much is the premium I pay the barber for the privilege of cutting the governor's non-existent hair,” Subbarao lamented in a recent speech.
A steady rise in prices has hit families across regions and income scales. The  RBI’s continuous  monetary tightening — raising interest rates to squeeze demand, and thus, prices —has  failed  to tame the price monster, but it has certainly forced families to cut down on non-essential expenses.

Advertisement

Yesterday’s luxury, today’s norm
Economists have a new headache.
While services account for one-half of India’s GDP, and a large share of household consumption expenditure, there is no price index for output prices in this sector, neither at the consumer nor at the producer level.
The only price series available for some services are those that have always been routinely collected in the consumer price indices, which hide do not adequately bring out the devil in the details of  "services inflation."
As earnings rise, the proportion of income spent on food falls, even if actual expenditure on food rises. Effectively, this means that one would tend to spend more on services and other goods as one goes up the income scale,. This is a sign of greater affordability and higher standard of living reflecting what is sometimes called  “upward mobility.”
The wholesale price index (WPI), while down slightly in June, has hovered above 7% for the last few months.
Economists caution that inflation is perhaps far deeply embedded in the Indian economy than what the wholesale or consumer price indices reveal amid an ongoing debate about the efficacy of India’s inflation control measures.
Inflation expectations-or the view among consumers and businesses of where prices are heading-are above 12%, which implies that households expect the cost of living to remain high partly because of costlier services.

As millions of people shift to higher standards of living, the focus is changing from basic needs of nutrition to more aspirational products and services that soon become a part of daily life.

“There is no appropriate cost-of-living index that appropriately measures services inflation in India. That is the reason why the RBI's household's perception survey on inflation is always higher than WPI or CPI,” said Samiran Chakraborty, regional head of research, South Asia, StanChart.

Adjusting to stay afloat
India’s overall consumer price inflation - a more realistic cost-of-living index because it captures shop-end prices — rose 10.02% in June —marginally down from 10.36% in May.

Surging food and services costs have shrunk disposable household incomes, as consumers have to pay more for the same goods. Such high inflation has meant average middle-income Indians are making expenditure adjustments to keep afloat.
In the last three years, EMIs for home loans have only gone up. These EMIs cannot be compromised. The budget, therefore, is  squeezed by cutting down on usual monthly expenses and even on items such as clothing and consumer durables.

 “In the last three years the EMI on my home loan has gone up by 25%. My monthly fuel bills have doubled. So, to ensure that we don't default on EMIs, we have cut on expenses such as eating out and vacations,” said Sudhir Verma, marketing consultant. “The only viable option left is to sell some ancestral property, earn a lumpsum amount, and pay off a bit of my existing home loan.”
There are others, who have deferred plans to purchase high-end products.

“We wanted  to  buy a LED TV but have put it on hold, till don’t know when. We  had  also planned to go in for a new two-wheeler, but are thinking whether to, given the four-time increase in petrol prices,” said Sumati Parama, a Chennai-based homemaker.
Inflation is not what it used to be.


Advertisement
more from Business

Maruti eyes top slot in mid-sized sedan segment with Ciaz

Having learnt lessons from the past with Baleno and SX4 models, the company is preparing to aggressively tap customers who are looking to upgrade, with the Ciaz, on which it has invested Rs 620 crore on development.
markets
Advertisement
Most Popular
Advertisement
Advertisement
Copyright © 2014 HT Media Limited. All Rights Reserved