I was thinking about Inflation and thought can we really stop this? I don’t know how far my thoughts are valid but still here are those.
Inflation as covered in my previous articles would give you a rough idea about what is. According to me, people have got enough money to buy products but there are less products present in the market and due to scarcity they are sold in premium. Just because people have more money and willing to pay for that product more, those products are sold at a higher price only because of the demand and nothing else.
How can we stop this? Just think about this scenario. In a village there are 50 people and only 1 shop which sells rice. The shopkeeper buys the rice from a local trader. Trader buys the rice from farmers of a different village for Re. 0.90 per kg and sells to shopkeeper for Re.0.95. Trader can stock at most 2000 kgs of rice in his storeroom on a day. He gets rice from villages only once in two weeks. The shopkeeper can at most stock 150 kgs of rice in his shop.
Each person in Village was buying 1 kg of rice for Rs. 1.10 per day for his consumption, so for every day the rice shop used to sell 50 kgs of rice. Shopkeeper used to get his share from the trader once in 3 days. One day, Shop keeper provides the opportunity for people to buy 10 kgs of rice for Rs.10. Suddenly many were interested in such a deal and wanted to buy 10 kgs of rice, all of a sudden the demand increased but the supply could not be met. Shopkeeper asked for more and more rice and trader gives 500 kgs of rice in 4 days and all the stock is depleted in just 4 days. This was happening as a routine and the shopkeeper decided to increase the price of rice from 1 to 1.25. People thought since there is a huge demand for rice the price is increased and started paying the price for it and started stocking the rice thinking that the price may increase further. Instead of buying 10 kgs people started buying 20 kgs in order to stock it so that they have enough for the next 20 days. Slowly people started stocking more and more and the price started increasing gradually. One fine day it touched Rs. 2. Since shopkeeper was asking for more rice, trader saw this opportunity to increase his price, the farmers also hiked their price since there was a huge demand. AS and when the demand increased the price also shot up.
If we think about this scenario, what can we conclude? Who is at mistake? Most of them would say shopkeeper. I would say its the villagers. If they had not started buying the rice at bulk the prices would have not increased so much. Since they themselves created this situation, they are paying the price of it. If all the villagers had decided to buy just 1 kg of rice daily then there would have been no major difference between supply and demand. It would have been as usual for them.
I think this is how the prices fluctuate and Highly paid professionals are partly responsible for this. Since we are the guys who are ready to pay dearly and stock things and create the price hike for others also to pay. We get paid handsomely and hence it does not pinch our pockets but for a common man it does. I would suggest you to not to pile up things. I am not sure even about its consumption. (People waste most of the food.) This would bring down the prices I guess.
Engineer's Finance 