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Tuesday, July 25, 2023

what pushes up Prices - not inflation !! but 'lifestyle creep' !!!

One can perhaps decipher the age based on the thoughts, posts and the conversations – while youth may talk more about gadgets, technology, Sports – people who have retired tend to talk more about rising prices and they way they lived life frugally decades ago.  !!   Me too started with first income of Rs.335 per month – certainly not going to post what all could have been bought with those 3 hundreds !! 

Now is the Tamil month of Aadi (Aashada masam in Telegu) – a few decades ago, these were considered as not so good period but traders have found a way out with ‘discount sales’ ..   come any such festival season – there are surging crowds in  Textile bazaar of T Nagar – Nalli, Kumaran, Pothys, Chennai Silks, Saravana, Jayachandran, RMKV  … and shop by every name – you find milling crowds ….in  magazines you will find jokes of ‘shopping women and poor husbands waiting (im)patiently’…… one can find allocated places for waiting – some jokes would say that waiting hubbies would get coffee, tiffin and more as their waiting would get extended to many hours !


.. .. be it any day not necessarily an important day – there are crowds in Gold and silver shops – GRT, Saravana, Kumaran, Vummidiars, Jayachandran, Joy Alukkas, Challani .. .. and other shops  - gold, diamond, platinum jewelleries worth lakhs are bought by people as one would wait for their chance to see the varieties and finalise their buys.  By some yardstick – purchasing power of people is increasing and people tend to buy more no. of garments (read sarees / chudidars) than the past generation used to …. 

In Television shows, in newspapers and in groups, we hear about “Inflation” – a term denoting a general rise in prices !!  

Inflation measures how much more expensive a set of goods and services has become over a certain period.  In a market economy, prices for goods and services will always change. Some prices rise; some prices fall !!   Inflation occurs when there is a broad increase in the prices of goods and services, not just of individual items; it means, you can buy less for Rs.500  today than you could in a corresponding previous period of time.  In other words, inflation reduces the value of the currency over time.  Every household has different spending habits: some have a car and eat meat, others travel solely by public transport or are vegetarian. The average spending habits of all households together determine how much weight the different products and services have in the measurement of inflation.  

It may be one of the most familiar words in economics. Inflation has plunged countries into long periods of instability. Central bankers often aspire to be known as “inflation hawks.” Politicians have won elections with promises to combat inflation, only to lose power after failing to do so. Inflation was even declared Public Enemy No. 1 in the United States—by President Gerald Ford in 1974.  

Inflation is measured as an annual percentage increase. As inflation rises, every Rupee you have buys a smaller percentage of a good or service.  The value of Rupee does not stay constant when there is inflation.  In India, we have the Consumer Price Index (CPI) -– more specifically - All India Consumer Price Index (General) for Industrial Workers (Base 1982=100).    

In 2013, the consumer price index replaced the wholesale price index (WPI) as a main measure of inflation. In India, the most important category in the consumer price index is Food and beverages (45.86 percent of total weight), of which Cereals and products (9.67 percent), Milk and products (6.61 percent), Vegetables (6.04 percent), Prepared meals, snacks, sweets, etc. (5.55 percent), Meat and fish (3.61 percent), and Oils and fats (3.56 percent). Miscellaneous accounts for 28.32 percent, of which Transport and communication (8.59 percent), health (5.89 percent), and education (4.46 percent). Housing accounts for 10.07 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.53 percent; and Pan, tobacco and intoxicants for 2.38 percent.

Every now and then Economists, politicians, masterbrains come up with newer set of terminologies that define, redefine the economy that affects common man !!  -  in UK now there is talk of ‘lifestyle creep’ and not the cost of living crisis that impacts as main reason on why the present income levels are not stretching as far as they could do earlier.   

Financial reports suggest record-high inflation in UK leading to a 19.2% increase in the price of food staples such as bread – and a  decent standard of living in London costs up to 58% more when compared to the rest of the UK.   Britons are suffering under high inflation and high prices, and the cost of a basket of shopping has rocketed dramatically.   

Thanks to failed harvests across Europe and North Africa––who can forget the tomato shortage earlier this year––this tighter supply has the effect of raising costs.  Food and non-alcoholic drink prices are driving record-high UK inflation with costs for staples such as bread and cereals fuelling an average price increase of 19.2 per cent in the year to March. Prices for meat, yoghurt and vegetables also doubled in the year to March.  And surprisingly, the highest grocery price increases are not at the fancy stores you might imagine. Instead, it is the cheaper supermarkets which are the most expensive this year.  The cost of heating has also been of concern with UK households faced with huge bills. The government says that a lower price cap is coming later this month, which means energy prices will begin to fall for the first time in around 20 months.  

It’s really easy to assume that your empty bank account is purely as a result of increased costs. High inflation leads to increased costs, and that means your salary doesn’t go as far as it once did. As a result, UK workers are feeling the pain.  Yet, lack of cash is also due to another factory – one most people simply do not think about !!   Lifestyle creep, or lifestyle inflation, is a phenomenon whereby the more you have, the more you spend on your standard of living. So where once you may have shopped in high street chain stores, now you gravitate to high-end department stores and fancy designer labels.  

The rise of the luxury market is fueling this further. According to experts, the global luxury market consumer base will expand to 500 million people by 2030, with this rise being strongly fuelled by younger Millennial and Gen Z consumers. It would be easy to assume that splashing the cash on a bigger car, a house with more bedrooms or more lavish holidays would be well within reach for those earning higher salaries–the median yearly salary in the UK was £32,300 in 2022. Instead, when workers earn more money, the things that were formerly out of their grasp now become necessities, and their cost of living increases in proportion.  

In the US, a report found that over half of Americans earning more than $100,000 a year live paycheque-to-paycheque.  So what can workers do? Being aware of how your standard of living has changed is a great first step in looking at ways in which you can cut back on expenses. Streaming services, multiple meals out and takeaways each week and subscriptions can all, almost invisibly, eat into your earnings, quite apart from the big ticket items you may be spending on.  

If you simply can’t find a way to trim your costs, one great way to boost your pay packet is to move jobs.  Another study discovered that workers who stay in a company longer than two years get paid 50 per cent less.  The phenomena is people no longer live in an era of a ‘job for life’. Nowadays, experts say that the average UK worker will have six jobs in their lifetime.    

Don’t brush these away as Western market analysis or phenomenon, it is bound to be aped sooner in India too.  Here too people change their jobs too frequently, yearning for more and more !  and it is not only money  inflation but also lifestyle inflation that is pushing people to have less and less as assets.  People earn, spend, get credit and .. .. sooner realise that they have not added much of bank balance or asset !!

Interesting !
With regards – S. Sampathkumar

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