SL narrowly avoids wage spiral despite soaring prices

• Broadening gap between wages and consumer prices reflects massive squeeze in purchasing power 

Despite raging price pressures, Sri Lanka has so far avoided a wage-spiral, a condition which refers to the employees battered by the cost of living crisis demanding more wages resulting in self-reinforcing cycle of higher inflation. 

According to the latest data available through July, wages for the informal private sector workers rose by 31.8 percent from a year ago, running below half the rate of inflation measured by the Colombo Consumer Price Index (CCPI). 
July inflation measured by the CCPI climbed to 60.8 percent from a year ago before accelerating to 64.3 percent in August. 

The Central Bank based on its projection believes that the prices would turn a corner after peaking in September with full effects of utilities price increases and new taxes are factored into the prices of goods and services. 
Although a comparison of the two indices – wage index and the CCPI—clearly reflects that the purchasing power of the people has effectively reduced by a half, Sri Lanka hasn’t so far witnessed compelling evidence of wage-spiral inflation, which could threaten the authorities’ efforts to curb inflation as it becomes self-feeding.
However, the question remains for how long the people would remain silent before taking to the streets demanding higher wages. 

Nevertheless, many organisations – both private and public – have already granted wage increases and special travelling allowances to their staff to partly shield them from the worst inflation in history. 
While the wage rate index doesn’t measure the formal private sector wage increases, the public sector has seen its wages rising by 16.1 percent in the year through July, only about a quarter of the pace at which the consumer prices are rising.  

During a wage spiral, workers already feeling squeezed by the soaring prices demand higher wages in order to maintain their previous purchasing habits and to shield themselves from any erosion to their real wages. 
As a result, the higher disposable incomes then lead to higher demand than the available stock of goods and services, causing demand-pull inflation. 

This cycle never stops as workers continue to demand higher wage increases in anticipation of ever higher inflation in the economy to maintain their living standards, leading to a self-reinforcing cycle. 
While the wider gap between the wage index and the consumer price index may have somewhat assuaged wage spiral concerns, it certainly reflects the hardships faced by the majority Sri Lankans and the extent to which how they had to cut down on their consumption and change their purchasing habits in the last six months.