New Delhi: About 20 percent increase in wage inflation is building up price pressure on food articles and is posing a big challenge for RBI to cut policy rates, an industry body said on Sunday.
"Near 20 percent annual increase in the wage inflation in rural areas is building up price pressures on food articles like cereals, rice and wheat, and is posing a big challenge for the Reserve Bank which is being called upon to cut the policy interest rates on Tuesday," industry body Assocham said.
Agreeing with RBI to link wage and inflation, it said: "In the last three years from 2010-11 onwards, the nominal rural wages have risen close to 20 percent per annum exerting pressure on the prices of food articles."
Assocham said the increase in rural wages would have raised demand for these (food) articles and led to increase in the cost of production of food articles.
"It was mainly a cost push, which is fuelling the inflation of such crucial items," it said.
Besides the rural wages, the production cost of the food articles has also increased by other raw material prices like fertiliser, diesel and transportation, it added.
"...We find ourselves in a high cost rural economy which has a significant impact on the urban economy, which is as it is under the high cost push," Assocham Economic Division said in a paper on 'Variables pushing food inflation'.
One of the urgent steps that could be taken would be government intervention to ensure that prices of essential foodgrains like rice, wheat and cereals do not shoot up any further, it said.
It would make best of political and economic sense for the government to intervene and make sure that adequate supply line is maintained.
"We need to act sooner than later," Assocham President Rajkumar N Dhoot said.