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Monday, 10 April 2017

7TH CPC ALLOWANCES- HIGHER HRA CAUSING AN INCREASE IN HOUSING INFLATION

7th CPC Allowances- Higher HRA causing an increase in Housing Inflation

Seventh Central Pay Commission Allowances- Monetary Policy Report April 2017

The 7th CPC recommended an increase in house rent allowance (HRA) of 8-24 per cent of basic pay.

The higher HRA would have a direct and immediate impact on headline CPI through an increase in housing inflation.

Assuming a rate of increase in the HRA as proposed by the 7th CPC is implemented from early 2017-18 onwards and the State Governments implement a similar order of increase with a lag of one quarter, CPI inflation could be 100-150 bps higher than the baseline for 2017-18.

The HRA impact on inflation is expected to persist for 6-8 quarters, with the peak effect occurring around 3-4 quarters from implementation.

In addition, indirect effects could occur from elevated inflation expectations.

View RBI Monetary Policy Report

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