How The Supplier And The Government Are Handling Inflation

Aditya Rao

Inflation figures for the past week showed that the inflationary disease had grown to an astounding 11.05%.A dramatic rise of almost 3% from the previous week. So the question must be asked how come you’re still paying more only for food products and fuel but the exact same price for consumer and retail goods?

The answer is in the fine print.

Granted, some goods do cost more than before like mosquito repellant or moisturizing lotion but most everyday household goods still cost the same. The catch is that unknown to most consumers producers of these goods have been slowly decreasing the quantities of the goods they sell.

So if you pick up a bottle of cleaning phenyl for about forty five rupees for a bottle containing half a litre of it earlier. You are still paying the same forty five rupees but unknown to you the quantity of the product has been decreased from 500 ml to 475 ml. A simple case of the company hoping that you won’t notice the slight decrease in quantity and be satisfied that despite inflation you are still paying the same amount as before.

Few might blame them .The Indian supply chain is extremely difficult to comprehend. Inflation hits each arm of the chain. The link between the direct manufacturer of the product and the store that you buy it from is extremely long with many stops. At each stop of the chain inflation eats into the quantity of the product and its price.

The finance department is clearly worried. The finance secretary came out with a statement earlier that describes the inflation curse as “Clearly Worrying”. In bureaucratic circles those words are only used to describe a situation that can lead to a government’s fall.

The cabinet seems to have taken note. Proposals are on to hike the CRR and interest rates by another 25 to 50 points, a second hike in a month. The government’s aim is to stem the supply of money flowing into the economy and to keep borrowing to a minimum.

For the first time the finance minister has openly stated that inflation is being caused by rising fuel prices. The dramatic increase in the cost of crude has put a lot of pressure on fuel consuming countries. In India the situation has become so drastic for the Manmohan Singh government that he will personally be sending the Finance And Petroleum ministers for a meeting between the Saudi government and oil consuming countries in the upcoming Jeddah oil summit to persuade the Saudis’ to increase oil production.

The oil price increase has hit India’s supply chain massively. Even the wholesaler has openly increased prices. Every commodity is being sold at a higher price and those that aren’t as said earlier are being done so at smaller quantities.

It’s no wonder then that the markets in turn are falling. The Sensex’s amazing Bull Run is definitely over for quite some time. Big or small if the investor is paying more on fuel and food there is no way he’s going to put the same money into the markets.

Which means that as of right now, both you and I will have to pay more for less.