Wage growth slows in Nov. amid easing inflation

• A spectre of wage spiral was building up leading up to October wage growth 

Sri Lanka’s wage growth eased in November, after months-long acceleration seen through October, perhaps in a reflection of the cooling price pressures in the economy in the last three months, although they still remain at exponentially high levels. 

The wage rate indices for November grew 23.7 percent and 16.1 percent for informal private sector workers and public sector workers, respectively from their year earlier levels but the growth softened from 26.3 percent for the former while the latter remained at similar levels from a month ago. 

Leading up to the relentless acceleration seen in wages in the two categories through October created a spectre of a wage spiral, a condition where the inflation feeds itself from ever increasing wages employees demand to maintain their lifestyles amid hotter prices.  

Once set in, wage spiral inflation is hard to break, as workers continue to fight for higher wages but the prices keep climbing, unless the corresponding productivity fails to keep up.

The UK government is facing a wave of strikes led by healthcare sector workers and rail workers currently, demanding higher wages, as the UK economy is undergoing its worst cost of living crisis in a generation, with consumer prices rising by 10.7 percent in November.

The UK’s economy is already in a recession, which could last a year or two, depending on how high the Bank of England would raise interest rates. 

Rising inflation in a declining economy offers a classic case of a so-called stagflation. 
However, with the November data coming in at somewhat softer than expected, it appears that Sri Lanka has at least for now avoided a wage spiral.

However, people eat less, suffer from malnutrition and have been pushed into poverty, as their real incomes fell sharply on the back of red-hot prices, leaving them far worse-off economically than a year ago. 

Even though inflation has showed signs of easing out in the last three months, food prices are still at sky high levels and thus Sri Lanka is among the eight countries in the world for worst food inflation. 

Sri Lanka’s only wage rate index leaves out the crucial official private sector workers and thus, it is unable to gauge how this segment, which adds the most value to the economy, has fared in their wages. 
Further, the wage rate index provides lagging data, as the data presented are at least two months old and thus raises the questions if they serve the true purpose. 

Unlike in the other countries, the wage indices in Sri Lanka aren’t taken up for debate or discussion in economic forums, largely due to these deficiencies.