Inflation eclipses wage growth making people economically worse off

The consumer prices, which logged the highest ever increase in April, have left scores of people economically worse off, plunged many others into dire poverty and some into starvation, as the wages fail to keep pace with the consumer inflation. 

Sri Lanka recorded its highest ever official inflation in April 2022, with the consumer prices rising by 29.8 percent from a year ago. However, the wage growth lagged substantially. 

According to the Wage Rate Indices compiled by the Census and Statistics Department, the wages of the informal private sector employees rose only by 21.1 percent in the 12 months to March 2022. 

In March 2022, inflation measured by the Colombo Consumer Price Index rose by 18.7 percent while the inflation measured by the broader National Consumer Price Index surged by 21.5 percent over the same month in 2021, wiping out any wage gains made by the people employed in the informal private sector. 

Since March, Sri Lankans across various social strata took to the streets against the multiple economic hardships caused by the fuel and gas shortages and multifold surge in prices in a matter of weeks amid the sudden devaluation of the rupee in early March.

The public anger grew when the daily power cuts lengthened to 13 hours towards the final week of March, which precipitated into endless protests, bloodied social unrest, which then led to an unprecedented political crisis.
Sri Lanka until recently risked getting caught up in wage spiral inflation, a condition where the workers demand higher wages to beat inflation, a process which never ends but only feeds one another. 

However, the economy no longer faces wage spiral, as the country has since self-imposed multiple austerity and more is coming by way of higher taxes, market pricing of utilities and expenditure cuts, as the government’s coffers run extremely shallow.   Last week, Central Bank Governor Dr. Nandalal Weerasinghe dispelling the rumours about the government’s inability to pay the state sector salaries from July said they would print money, should it be warranted, as not doing so could cause a bigger crisis. 

Meanwhile, the new Prime Minister Ranil Wickremesinghe told BBC Television on Friday that the economic conditions would get worse before they get better but ruled out a famine, as he called for help from all diplomatic partners for the next one year until the country emerges from the worst economic crisis since its independence.

 
As his first task since assuming the job, he met with at least half a dozen diplomats, including India, China, the United States, Japan and the United Kingdom, calling for a multi-country foreign aid consortium similar to the one had during 2004 tsunami, to raise foreign currency borrowings and aids, which could then be used to fund the imminent needs such as fuel, cooking gas, medicine and furnace oil for generating electricity.