Why This ‘Flation’-fixation?
It’s inflation.
Isn’t it a recession?
Is it an economic crisis, yet?
Will we have stagflation?
Of late, many economic jargons have been used. Keeping those aside, going by economic data, it is evident that the global economy is undergoing deep pain, never seen as much hurtful as the previous World War did. In our own market, the Consumer Price Index (CPI), which is the retail inflation indicator, has been above the RBI’s upper target range of 6%. With global events like the continued covid wave, supply chain disruptions, Russia-Ukraine war, it has become uninfluencable in many ways. Despite the RBI’s hectic efforts to rein in inflation, as well as manage the USD-INR pricing stability, the inflationary number has been breached. Yet all is not lost, and we are in a much better situation.
But that’s where it hurts too. When we showcase our situation comparing ourselves to economies that are in worse-off conditions. Why? Such comparisons do not help the citizens to take any solace or comfort.
The ‘F’ fear-factors
Food inflation, Fuel inflation and FOMO are those that encompass middle-class worries. Food inflation hurts the middle & lower income communities the most. Consumers’ perception of how much inflation is, and how it hurts them is mainly based on the food prices. The frequency of their food basket shopping reiterates such a belief. Percentage increases or decreases don’t make any sense to citizens. It is the actual food basket cost that is telling. This summer also saw vegetable, fruit, milk and edible oil prices shoot through the charts and did build a scary-inflation syndrome amongst people. Showing the citizens any data chart won’t make them change their views though.
The pressures of global geo-political obstacles and uncertainties, rising global prices, increasingly worsening global food crisis, and volatile climate change do impact the unpredictability of food inflation. A 2020 RBI study had shown that the macroeconomic impact of climate change on food inflation is statistically relevant. With the upcoming festive season, which usually sees an increase in demand, pressures on price increases could be expected. As monsoon trends are not in human influence, we have to start working in rapidly improving agricultural productivity. A resounding success in that endeavour can continue to provide food security and stability of food prices in the decades ahead.
Fuel prices have been on the rise for a long, and despite some concessions, they still are higher and more expensive for the middle and lower income groups. A fully integrated Multi-nodal public transportation with last-kilometre connectivity could be a long-term solution for this aspect.
If you look at the stock markets, the domestic retail investors have rushed in to invest in new-age economy stocks. Despite their prospectus talking of risk factors of not being profitable. Yet the same set of investors has now either booked losses and exited or continue holding onto those stocks.
These 3 F-factors will continue to fluctuate with time, and with varying pain.
New word - stagflation
Stagflation is an anticipated fear, and is defined as a situation with persistent high inflation combined with high unemployment and stagnant demand in a country's economy. While current data might not be indicating such an possibility, it cannot shoo away the economic pain across many sectors. At the same time, it is a political and social concern if unemployment numbers increase.
India's overall macroeconomic situation has been in a recovery mode since covid lockdown, but the growth seems to be concentrated at the top end. So what about the lower end of the economic spectrum? While the fiscal stimulus could handhold the segment during covid, we will have to come up with newer ideas to stimulate livelihood and entrepreneurial activities to cover all social-economic segments.
In the latest Monetary Policy Committee meeting yesterday, the RBI hiked the repo rate by 50 basis points to 5.4% with immediate effect. While this action is to control inflationary trends, it would make the cost of all sorts of loans expensive in the coming weeks. This won’t solve for improved access to credit to boost business scaling up ? How does one solve for concerns of basic business survival, as seen in a few sectors?
In closing
All the statistics about growth, unicorns, FDI, the potential of the economy, credit access availability, employment generation etc have literally no meaning for those who can’t get ease and access to livelihood. Average is a poorer way to arm-twist data to submit to outcomes that are positive sounding. Probably we should also attempt median and mode, with the same data. Also if one were to dissect the economic growth of our markets, has it been inclusively distributed across income segments? Or geographic? Or gender? While it is essential to defend the untiring work of those propping up our economy and markets, it would also help to have empathy for those suffering due to market conditions. In a statistical table, each of us get subsumed as a minuscule data point.
It’s some ‘flation’ for sure. And it’s hurting. Let us show some concern and talk of our economic issues in human speak. We cannot use the divide of haves and ‘have nots’ get more evident or increase that chasm. Sometimes a simple heartfelt acknowledgement of pain helps heal faster, and that feeling that ‘we can overcome, together. Comparing data of other economies don’t make it easier for those bearing the pain. Imagine if you were waiting in a medical clinic with some severe abdomen pain. How will you like it if your friend tells you should be happy that you are better than another patient who has some bleeding happening?
Dr. Srinath Sridharan - Corporate Advisor & Independent markets commentator
Twitter : @ssmumbai
