Inflation’s Pinch


I thought that inflation has come down significantly by reading The Economic Times.

It has definitely come down, no doubt, from high two digits to high single digit as of now in India. One evidence that is quoted in the newspapers is the price of onion which is currently at less than INR 10 per Kg. It was ruling at more than INR 60 just 3 months ago.

But today my wife sent me for some fruits shopping, which I dutifully executed. I noticed that super markets now adopt “dynamic pricing”, they must have totally automated the pricing mechanism via connectivity to the wholesale market I guess. The prices keep changing almost every day. I took note of the price fluctuations in the super market prices of apples, pears, grapes, and pomegranates. Big difference between what I saw a few days ago and today’s prices.

The economic linkages between wholesale production, distribution, market manipulations and retail pricing were clearly in play, and I think this is the way the consumer market is going to work in India. When it comes to many items of daily consumption, it can safely be stated that the demand is inelastic to price variations. This proved to be incorrect only in the case of onions. But otherwise the consumption does not fall with changes in prices as people need to eat and survive. They can alter individual consumption quantities and redirect their “constant” budget towards other items of consumption which are not that much varying in price, but overall demand does not suffer in any major manner.

Given the above analysis, it was clear that many people who are shopping in an upscale super market continue their shopping habits irrespective of price variations – they might crib a bit and raise discussion points while having a drink with friends and relatives, but that’s about it. Life goes on, and this gives ample opportunity for a highly automated and market-linked system to vary prices of such inelastic items and derive maximum profits on any given day. I am sure Walmart does it, and now I am almost sure that the leading super markets in India are doing it.

So, inflation is going to pinch continuously. Get ready for another year when prices are going to be affected not only by supply constraints but also by market operators.

Welcome to Inflation combined with Growth – that’s India folks !

Cheers,

Vijay Srinivasan
26th March 2011
Mumbai

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