Inflation in Cost of Services More Than in Merchandise: Survey

New Delhi: India's middle class is reeling under the impact of spiraling inflation with prices of basic services rising by at least 25 per cent year-on-year outpacing the escalation in cost of merchandise goods, according to a study.

"Costs of services such as education including coaching, health, transport, servicing of personal vehicles, personal care services are increasing at a much higher pace (as compared to the WPI & CPI), pinching an average middle class family at least 25 per cent more year-on-year," the study said.

The study by industry body Assocham covered essential services like transportation, education and healthcare.

High costs would affect sectors like IT (information technology), banking, healthcare and education. It found that excessive increase in prices of essential services consumed by the average city households among the middle class has also made the consumers "frown upon" paying the service tax, which is becoming more  and more important for the general exchequer.

The high cost of consuming services would also mean shelling out more taxes since the levies are ad valorem and not specific, Assocham said.

"Rising costs of services which claim bulk of the middle class budgets are going to exert pressure on salaries," Assocham Secretary General D S Rawat said.

Analysing the cost of healthcare, the study estimated that the doctors' fee, cost of tests and hospitalisation charges have gone up 70-100 per cent during the past 5 years.

"Hopefully, things will improve once the cash-starved insurance sector gets fresh infusion of foreign investment if the government manages to get a political consensus on the issue," Mr Rawat said.

"With services accounting for over 65 per cent of the GDP, the key lies in checking the costs. Else, the advantage of even the arbitrage between the cost of employing workers in India and Western nations may bridge, posing challenges for crucial sectors like IT."

Wholesale price inflation (WPI) for June had eased to 5.43 per cent from six per cent for the previous month while consumer price inflation (CPI) during the same month was 7.31 per cent, much lower than the increase in costs of services, it said.