Question { Reliance, 64299 }

What are causes for inflation ?

Answer

INFLATION – WHO IS RESPONSIBLE?

Inflation – Economists have given different definitions for
this term but not satisfactorily defined. In simple terms
this is associated with rapidly rising prices of goods and
services.

An army of Economists, the so called experts in economics,
are arguing that “Inflation is an unavoidable evil in the
economic development. Inflation induces investment which
will enable more production, supplies and services. This
will result in competition and finally prices will come
down.”

In the economic theory, it is explained that when the
income in the hands of people increases the demand for
goods and services tend to increase. When the demand
increases the price tends to increase (direct
relationship). When the supply of goods decreases the
price tends to increase (inverse relationship).

Moreover when the cost of manufacture increases, due to
input cost increase, the price of finished goods also
increases. As the Governments (Central Government, State
Government, and local authorities) increase the tax rate,
the price of goods and services also increase.

These are the explanations given by the Economic experts
for inflation. They have explained only the results
(symptoms) but not the reasons for inflation. Not even a
single economist has explained the most important
factor “greediness of individuals” in the society which
leads to rise in price of goods and services.

“The unending increase in the level of greediness in every
individual in the Society is the root cause for sky
rocketing price rise”.

In the earlier times, manufacturers of goods were expecting
a reasonable profit on the goods manufactured as a return
on their investments. In the same way traders were selling
the goods purchased by them after adding a certain
percentage on the cost of goods just to earn a living. The
percentage added on the cost was comparable with the
returns expected from a similar quantum of investment in
the other options available.

But now the greediness of manufacturers and traders, to
earn a higher profit, has prompted to increase the rate of
margin on the goods sold. This has changed
the “reasonable profit rate” to “abnormal profit rate”.
For example, Ten rupees worth of good, which was sold at a
profit rate of 10 to 15 percent, now has reached more than
100 percent and the total profit is shared by the
manufacturers, brokers, traders (whole sale and retail) and
the ultimate consumer is paying from his hand. Besides
this, attractive advertisements making tall claims but
without any truth, disseminate rumors, hoard, adulteration
etc are the tools adopted with an aim to cheat the
consumers. Service providers are also not exception to
this. Banks (especially Private Banks) are charging
exorbitant rate of interest; Educational institutions are
collecting unimaginable amounts as fees and donations from
pre-primary education to Higher education and
management/professional courses. Health institutes provide
their services only to the wealthy people to collect huge
amount for their services.

Investors, on their part, are expecting highest rate of
return on their investments.


What about the other side (the Consumers)?

The consumers on their part, in order to improve their life
style, comfort level, make various efforts to increase the
income. When some people in the society are capable of
increasing their income by hook or crook, a few others, in
some families, both male and female take up a job, may be
full time, part time or flexi time, to increase their
income.

People in the organized sector with the help of strong
trade unions; improve their salary and other benefits by
threatening their employers by adopting strike.
Professionals charge phenomenal rate of fees from their
clients. Government employees and employees of public
sector units, banks etc also getting their salaries revised
every now and then in the name of inflation.

Government officials, Politicians and their supports,
without even an iota of shame, demand and take heavy amount
of bribe from various people like contractors,
Industrialists even general public in return for the
benefits provided to them.

All of this money collected is utilized for purchase of
various goods or is invested in properties. Too much money
is chasing too few goods/services. Moreover, every one is
expecting the price of the goods/properties should go up,
so that they can get more benefit at a future date.

Government on its part, in the name of social welfare,
collects huge amount by way of various taxes and every now
and then increases the same and spends on populist schemes
without checking whether the money spent have reached the
targeted people. Contractors, government officials,
Industrialists, Political parties and people supporting
those political parties are sharing the funds among
themselves.

In general, every individual is interested to take as much
as possible from others in the name of business and
services which is nothing but robbery. Those who are
capable to increase their income are not bothered about
price rise.

In this manner both sides are competing with each other in
rising price level. Instead of taking suitable steps to
arrest the price rise, consumers exerting more effort to
increase their income and spending/investing on various
items which adds the force for further rise in price.

What is the solution for this menace, inflation?

Gambling in the name of “future market” should be banned.
Selling goods by way of Auction should also be banned.
Every one should understand the real reason for the price
rise, GREED. Hence, every individual in the society
should control their greed. Else, others should apply the
brake on their greed. How? Using the same economic
theory, “If demand decrease the price tends to decrease”,
price rise can be arrested. If the consumers succeed in
controlling their demand even for a short period,
definitely the price rise can be stalled. Because if the
demand decrease, there will be a decline in turnover which
will lead to decrease in profit. No trader can afford it.
Hence they will reduce the price to induce the customers to
purchase more. When traders try to increase the price
citing various reasons such as short supply during festival
season, rain, strike etc. consumers should postpone their
purchase. Thus, whenever the price tends to rise, people
should try to counter it by controlling their purchases.
The NGOs and Government should disseminate the details of
cost of production of various items, so that the users can
identify the difference between cost and market price of
the said goods.