Rural Food Price & Wage in India-Short Run v/s Long Run

Abstract

n order to establish the likelihood of a “wage-price spiral” impacting inflation, this study investigates the “relationship between rural wage growth” & rural food inflation in India. To evaluate the long term short-term link between the assigned variables, the study employs the Johansen Co integration, followed by the VECM, to identify “the direction and causality between rural” incomes and food prices in the short and long run. The results of co-integration show that among the variables under examination, at least one co-integration equation exists. Only non-agriculture has a positive influence on pricing in the short run, according to the “Vector Error Correction Model (VECM). In the long run, both nominal agricultural and non agricultural wages show a statistically significant positive relationship with rural prices”.