May 22, 2022

Inflation: A Cruel Attack on Working People

THE country is in the grip of an inflationary spiral resulting in galloping price rise of all essential goods used by the people. This crushing price burden is making life exceedingly difficult for the rural and urban poor.

The retail inflation rate stood at 7.8 per cent for May, the highest in the past eight years; food price inflation surged to 8.38 per cent, the highest in the past seventeen months; and the wholesale price index inflation in April rose to  15.08 per cent, the highest level in the current 2011-12 series.

What do these dry statistics mean for the ordinary people, particularly the poor? In real terms, this translates into increased prices of atta, vegetables, edible oils and cooking gas. It means less to eat for the poor and lower middle class families, cutting out nutritious food for children and the inability to buy any of the goods necessary for a minimum standard of living. The price of atta, a staple of north India has increased by 13 per cent over a period of one year (May 2021-May 2022), milk costs over Rs 50 per litre, cooking oils are priced around Rs 200 per litre and the seasonal prices of vegetables have shot up.

Inflation means loss of livelihood for lakhs of people – street vendors and those surviving by running small businesses. It also hits the small and micro enterprises.

The single biggest factor in the inflationary spiral is the rise in fuel prices. The central government’s policy of steady increase in central taxes on petrol, diesel and liquefied gas has led to an unprecedented increase in the price of petrol, diesel and cooking gas. This began much before and the Ukraine war has only aggravated the situation. Since fuel is a universal intermediate, the rise in prices of petrol and diesel, have had a cascading effect on prices of all commodities.

It must be underlined that cesses and surcharges constitute 96 per cent of the central excise duties of petrol and 94 per cent of diesel. The cruelest hike is that of cooking gas cylinders with the price of a domestic 14.2 kg cylinder having increased by Rs 431.50 in one year i.e., 76 per cent increase. The commercial 19 kg cylinder price is now Rs 2,397 i.e., up by 126 per cent.

The Modi government has a shockingly callous attitude to this alarming picture of inflation. On the very day the figures of retail inflation for April were released, the finance ministry sought to portray as if the poor are hurt less by higher prices as compared to the rich. In the monthly economic review report for April it is stated that “Evidence on consumption patterns further suggests that inflation in India has a lesser impact on low-income strata than on high-income groups”. The report comes to this conclusion by arguing that the headline retail inflation has varying impact on different segments of the population namely, the top 20 per cent, middle 60 per cent and bottom 20 per cent according to their consumption expenditure.

The spuriousness of the conclusion can be brought out by one aspect of the analysis. The monthly economic report cleverly highlights the change in effective rate of inflation in various consumption classes in rural and urban areas. Inflation indicates change in price, if in one year the rate is high for the urban poor and in the following year it is relatively lower, then the combined impact in terms of prices would be higher even if the effective inflation rate declines. For instance if the initial price for the urban poor was 100 with a 6.8 per cent increase in the next year it will become 106.8 and then if the effective inflation rate comes down to 5.7 per cent as the report suggests then the effective price at the end of the third year becomes 112.89 (5.7 per cent over 106.8).

So in year one the price was 100 and in year three it becomes 112.89 and this is the highest increase among all consumption classes which the report deceptively hides. For other categories the combined effect is relatively lower, although prices increased for all the groups and for rural and urban. Hence the urban poor are the worst hit even if the effective inflation rate declines from 6.8 per cent to 5.7 per cent.

The idea that inflation affects the richer people more has to be debunked. Inflation directly hits people who earn wage incomes and have low savings to fall back upon and particularly in regard to food inflation those who are net buyers of food. The rich and the upper middle classes can hedge the incomes through financial instruments and stock markets where prices move along with the inflation rate and hence can protect their income to a large extent.

Inflation generally leads to a transfer of income from the poor to the rich as the poor have no other mechanism to compensate their loss in real income which the rich have. Corporates having control over the market would transfer the burden of higher input costs to the consumers while maintaining their rate of profits. Further, due to inflation, real interest earnings of savers decline while borrowers have to pay lower effective interest rate. Since it is the working people who are largely savers and capitalists who are largely borrowers, here also working people suffer more.

To fight price rise, the Left parties have called for a roll back of all surcharges and cesses on petroleum products which is the only way to bring the prices of petrol and diesel under control. They have also called for the strengthening of the public distribution system by supplying all essential commodities, particularly, cooking oil and pulses. Given the widespread loss of income and livelihoods which worsened during the two year Covid period, they have demanded a cash transfer of Rs 7,500 per month to all non-income tax paying families.

It is these demands to check price-rise along with the urgent steps to be taken to alleviate the problem of unemployment that should become the priority agenda for all the Left and democratic forces. The Left parties have given a call for a nationwide struggle on these demands between May 25-31. Such struggles and movements against price-rise and unemployment should be spread and intensified all over the country.

(May 18, 2022)