Wednesday, November 4, 2009

Inflation revisited - It does not stop at 49.5 percent

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    • The CPI numbers, which represent the true effect of prices on end consumers tell us another story. As we see from the chart above, the CPI is running very hot - almost 13 percent for all items and 15% for food. This is a direct consequence of NREGA and other inflationary policies.

      The NREGA policy will hurt the economy grievously. If you take out 20% of labor force from the economy, you will get 20% less output. Short term gains for politicians, a true long term disaster in the making. Low end industries and labor intensive jobs get priced out causing a death spiral.

      Right now it is hurting the poorest because food prices are going high. As an example, mid-day meal schemes in Hyderabad serve "plain rice and watery dal" because that's all they can afford. Of course, the public mid-day meal schemes suffer from other more serious problems.