ISSN: 1391 - 0531
Sunday, July 29, 2007
Vol. 42 - No 09
Financial Times  

Cars, mobiles and inflation

Can you measure the increasing number of cars, motorcycles, mobile phones and the level of consumer goods as an indication that a large section of the population has money in their hands?

Senior government officials seem to think so going by Central Bank Governor Nivard Cabraal’s argument that how come the sales of car, motor cycles, mobile phones and the like are increasing if people don’t have money.

How is the consumption of white goods increasing if these items are pricier ... is his argument.

Some years back, Treasury Secretary Dr P.B. Jayasundera made the same point during a one-on-one interview saying if inflation is high and the public is struggling against the rising cost of living how come the number of vans and cars has increased in urban and rural areas.

Good points but doesn’t hold much water. While supply data is available, demand data and the specific categories of those who own and buy cars are unavailable. For example most of the vehicles outside those owned by the public sector are owned by private companies and those using them are corporate executives. In the private sector, very few CEOs up to junior level executives own cars – they are provided cars by the company they work as perks that come with the job. That’s talking in terms of thousands of vehicles.

To take the argument further, in the case of small businessmen or entrepreneurs, their vehicles are either mortgaged, leased or rented– rarely owned as it’s cheaper to hire or lease than own. Thus it’s just a small percentage of the population that owns cars and the proliferation of reconditioned motor vehicle sales centres doesn’t mean this country has suddenly got many rich people. That’s a ridiculous argument.

Then take mobile phones or motor cycles. Yes … mobile phones are owned by all and sundry but have you noticed the number of people in Colombo – particularly the yuppies – who have two or three mobiles? There are more left at home or many more owned by the spouse. This is not saying that your local policeman, drivers, fishermen and ordinary folk don’t have mobiles. They do but that’s because it’s an essential tool purchased on borrowed money and probably paying off a loan to acquire these once rich-only gadgets now which have become a need.

Forget the opposition who may use perceptions in crowing about the rising cost of living. They are playing politics even if the reality is true. Forget the government – they have to defend themselves against rising costs. Bandula Gunawardene is a classic example of a politician who says what is needed for the hour.

When in opposition he criticised the Mahinda Rajapaksa regime for printing money and other flaws; a few months later in government his view has turned a full circle. On Wednesday he was reported as saying that when fuel prices in the world market rise, the government is helpless and has no choice other than to raise prices locally!

Forget these government and opposition views. The reality is that prices are rising … ask any housewife and they’ll tell you the real thing. Two months back, a female executive paid Rs 80 for a trishaw journey from point A to point B. Last week, she said the trishaws were charging Rs 200 for the same trip.

The Central Bank says the rate of increase of inflation is rising in July compared to a deceleration in the past few months. But the Bank sees this is a temporary phenomenon and expects the rate of inflation to once again decelerate in the months to December. These are fine as statistics but unreal in the real world.

The basket of goods that go to calculate inflation is outdated and shouldn’t be the barometer of measurement of prices. The quality of life on the other hand has changed so much that one person’s luxury (in rural Sri Lanka) is another’s essential commodity (in urban Sri Lanka). Urban poor needs are more costlier than the rural poor.

We can go on labouring the point about inflation but that is not going to change the cost of living. For, when we wake up tomorrow, the price of petrol, LPG or diesel would have risen … and still the economy will chug along at ‘tremendous growth rates’, ‘investors will flow in’ and the rate of inflation will ‘decelerate’. Nothing will change despite this commentary … except the ‘growth’ in prices of essential items for the population!


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Copyright 2007 Wijeya Newspapers Ltd.Colombo. Sri Lanka.