Prices rise when the supply is being outstripped by demand. Or when there is an expectation of a supply constraint in comparison to the impending demand. Or when there is an oversupply of money...
The 'theory' concocted by the government that the current bout of inflation is an 'imported’ one, due to high oil and commodity import prices is a bogus one. The government has been pumping the economy with liquidity in the form of various dole outs to different constituencies in the form of Rural Employment Guarantee, Urban Renewal, Loan Waivers, Pay Revisions, Purchase of Dollars (to suppress the Rupee for the benefit of exporters), Infrastructure Spending etc.; while the society has drifted towards unbridled consumption patterns.
Inflation today is largely because of high labor cost (with low capability) and poor improvement in productivity (in all sectors of the economy). The government has done precious little to improve these supply side constraints. Education has been a fiefdom of the politicians for far too long. Reforms necessary to blast productivity bottlenecks have been stalled for years.
The only durable answer is to consume less and to become more productive (i.e. produce the right things with the least amount of waste).
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