An year ago I read an article that gives perfect example of Inflation rates. I thought it should be shared with you all..
Former RBI Governor Raghuram Rajan once visited an engineering college for a federal bank event in Cochin.
In the event, an engineering student asked, “Why does the humble Dosa — the South Indian dish loved by all — continue to cost high when RBI is claiming a victory over inflation?”
“In real life, when inflation rates go up, Dosa prices go up, but when inflation rates are lower, the Dosa prices are not lowered. What is happening to our beloved Dosa, sir?”
Governor Raghuram Rajan blames lack of technology upgrades from its traditional ‘Tawa’ preparation and high wages of the person making it!
“The technology for making Dosas hasn’t actually changed. Till today that person puts it (Dosa batter) on the tawa, spreads it around and then takes it out, right? There has been no technological improvement there. However, the wages that you are paying to that gentleman, especially in a high-wage sort of state like Kerala, are going up all the time,” Dr. Rajan said.
Dr. Rajan also said that the workers can be used in many productive areas where productivity has gone up such as factory works, banking where today that same bank clerks service many more people because of technology.
“So, what happens is that in an economy which is growing and when there are sectors which are improving technologically while other sectors are not improving their technology, the prices for the goods manufactured by sectors, that are not improving their technology, will go up faster.”