The Hindu Business Line : Inflation

This refers to the report “Inflation climbs to 7%; Govt continues fire-fighting” (Business Line, April 5). Inflation, which may be either due to demand-pull factors (other than prices) such as increase in income, population, or to cost-push factors such as increase in the cost of inputs including technology, excise duty, sales tax, and so on. Now, it has reached a three-year high of 7 per cent and the reasons attributed to this are higher prices of edible oils, vegetables and a number of manufactured products.

Strictly speaking, inflation is a situation wherein the demand for commodities exceeds their supply. Even if we buy the argument (from some quarters) that the current spurt in inflation is cost-driven, it is mainly due to increasing labour costs such as salaries and perks. (Needless to say, labour is the most important and costly factor of production). Hike in wages not only pushes up the cost of products but also the demand for them.

So, fiscal measures such as cutting the import duty on edible oils and banning the exports of some food items alone will not suffice in the country. They must be buttressed by judicious wage system that discourages frequent increase in salaries, perks and allowances.

S. Ramakrishnasayee Ranipet

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