Soaring inflation blunts wage gains as prices eat into real incomes

Sri Lanka’s soaring prices have nearly caught up with the increases in wages, thereby making people financially worse off than a year before. 

Sri Lanka reported an eye-popping 18.7 percent consumer price inflation in March over the same month in 2021, as the nearly 50 percent plunge in the rupee against the dollar was reflected in consumer prices within a span of three weeks, as prices readjusted to reflect the new dollar/rupee rate. 

This was while the global economies were grappling with the worst and prolonged commodities prices boom caused by the snarled supply chains following the pandemic restrictions, which was further exacerbated by Russia’s invasion of Ukraine, which pushed the global oil prices by as much as 32 percent higher year to date. 
Meanwhile, the wage rate index for the informal private sector workers in January was measured at 18.8 percent from a year ago. Given the official inflation index running at near this level, it appears that the workers are losing any wage gains they had made.

The situation could become worse in March, of which the growth in wages is yet to be seen. 

Wage indices in Sri Lanka are enormously lagging and can hardly be used for meaningful decision-making or planning purposes.

Meanwhile, the public sector employees saw negative real incomes, as their wage rate index grew by 16.1 percent, far behind the most recent inflation reading. 

The negative real wages could be a bellwether for employee uprisings and wage spiral inflation, which Mirror Business warned repeatedly as this has become a reality at present.  Meanwhile, Sri Lanka has also become a classic case of stagflation, as its growth is faltering while the inflation rising and the people risk losing their jobs, due to the slowdown in the economy amid the rising interest rates and worsening foreign exchange crisis.