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HindustanTimes Thu,27 Nov 2014

Small town, big pain: what inflation did next

HT Correspondent, Hindustan Times  New Delhi, October 12, 2012
First Published: 20:33 IST(12/10/2012) | Last Updated: 01:55 IST(13/10/2012)

Conventional wisdom says big metros are costlier places to live in than small towns. Think again. The Inflation Monster has altered the map to overturn the wisdom. House rents may be cheaper, but many other things are not.


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Consider what Sumati Parama, a Ranchi-based homemaker has to say: "We had 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 really thinking whether to or not, given the sharp rise in other expenses."

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Economists caution that inflation is perhaps far deeply embedded in the Indian economy than what the wholesale or consumer price indices reveal, amid a raging debate about the efficacy of India's inflation control measures.

Almost all everyday products and services - from food to footwear, movie tickets to medicines, from restaurant meals to deodorants and lipsticks - have turned dearer in the last 12 months in the smaller towns, hitting family budgets hard. The same amount of money now buys fewer goods.

"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," said Niyor Kalita, a college student in Guwahati.

The price monster is injuring more in the smaller towns than the glitzy metros. (See table)

It's not just soaring food prices. Telephone services, gyms and beauty salons now cost more.

The Reserve Bank of India's survey on inflation expectations for the October-December quarter puts the number at a disturbing 12%.

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 living.

"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 for South Asia at Standard Chartered Bank.

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With growth suffering, companies have pruned wage bills to cut corners in difficult times, and offered lower salary hikes that barely take care of rising prices.

The RBI's strategy to squeeze money supply by raising interest rates in order to control inflation is working only partially. But it is hurting industrial growth, which crawled at 0.4% year-on-year in the April-August period.

India's overall consumer price inflation - a more realistic cost-of-living index because it captures shop-end prices - rose 9.73% in September-marginally down from 10.03% in August.

The devil of the fresh price indices lies in its detail.

On a year-on-year basis, vegetable prices surged 14%, while that of milk and allied products shot up 10.71%. Non-alcoholic beverages - like your can of soft-drink- rose 10.01%

Prepared meal prices - a proxy for restaurant meal costs- rose 9.4%, partly because the government hiked service taxes and soaring vegetable prices.

In the last three years, home loan equated monthly installments (EMIs) have only gone up. Home EMIs cannot be compromised. So the budget is squeezed by cutting down on usual monthly expenses and even on items such as clothing and consumer durables. In other words, higher prices and a need to find additional money for EMIs force cuts on purchases like televisions and cars. The resulting fall in demand hits companies, hurting their revenues, already boxed in by rising input and borrowing costs.

"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 vacations," said Shantanu, a Siliguri-based entrepreneur.

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