Context:

A recent study by the State Bank of India (SBI) highlights the growing impact of labour migration on inflation rates in southern states, particularly Kerala and Tamil Nadu. According to the study, migration from low-income states to high-income states is contributing to a rise in the cost of essential goods, exacerbating inflation in these regions.

Key Findings of the Study

1. Regional Inflation Trends
   The study reveals that southern states, especially Kerala and Tamil Nadu, have experienced higher inflation rates compared to other regions of India. In contrast, northeastern and western states have witnessed relatively lower inflation.
2. Impact of Labour Migration
   One of the primary drivers behind this inflationary trend is the migration of labour from low-income states to the economically prosperous southern states. The influx of migrants increases the demand for essential goods and services, pushing up prices.
3. Higher Purchasing Power
   The study notes that the increased purchasing power of residents in southern states, driven by economic growth and migration, has anchored higher inflation rates. As the local economy grows and wages rise, demand for goods increases, contributing to price hikes.
4. Taxation and Policy
   The study also identifies taxation as a contributing factor. Higher taxes on items such as petrol, diesel, liquor, and registration charges for automobiles and flats are compounding inflation in these states, making everyday goods more expensive for consumers.

State-Wise Inflation Rates

• Kerala:
  Kerala recorded the highest inflation rate of 7.3% in February, marking a significant rise in the cost of living in the state. The state's heavy reliance on migrant labour has further exacerbated the inflationary pressures.
• Tamil Nadu:
  Tamil Nadu, like Kerala, has faced inflation rates higher than the national average for 9 out of the last 13 years. This ongoing trend points to structural economic factors, including the influx of labour, which have contributed to persistent inflationary pressures in the state.

What is Inflation?

Inflation refers to the gradual loss of purchasing power, which results in a significant increase in the prices of goods and services over time. This decline in purchasing power means that each unit of currency buys fewer goods and services.

The inflation rate is calculated by averaging the price increases of a selected basket of goods and services over a year. The rate helps measure how much prices have risen compared to the previous year.

• High Inflation: When prices rise rapidly over time, leading to a decrease in the value of money.
• Low Inflation: When prices rise more slowly, reflecting a less significant impact on purchasing power.

Conclusion

The SBI study underscores the complex relationship between labour migration and inflation in southern states. While migration has contributed to economic growth in Kerala and Tamil Nadu, it has also led to higher inflation due to increased demand and higher taxation. Policymakers will need to address these issues to ensure balanced economic growth and control inflation in these regions.