Thing seem to have been blown beyond proportion in our country. Blame it on the strong communication infrastructure if inflation shoots up suddenly. Not that the prices of onion going beyond ascertainable levels are new anymore; it is the pattern of similarity of reappearing events that is more astounding.
Amazingly, onion prices skyrocketed when flash flood devastated Kedarnath and cities downstream. However, no one cared to explain the price rise. After all, vegetables are not primarily sourced from high altitudes of Himalayas. Yet, to our surprise, the explanation offered for sudden increase in prices of vegetables was the flash flood. Though most of us did not know the real cause of 'flash inflation', the fact that flash floods had devastated a region was enough for us to accommodate to the fresh wave of inflation.
Flash inflation, for the lack of a better phrase, is recent new phenomenon that India is getting in terms with. The interesting revelation about the new trend is that it rides on news that can drive emotions among general masses. Be it a probable war with a neighbouring country, or a draught in other part of world; the speed with which the news spread is proportional to the rise in inflation irrespective of whether the news had any relevance to the prices of commodity or not. Clearly, the supply end seems to be taking advantage of the opportunity by exploiting the news that shakes popular sentiments. Recent spike in onion prices is outcome of the most recent communal unrest in Uttar Pradesh even though this belt is known to be the sugar capital of India.
Modern economy works on the principle of 'incentive'. For a trend to pick up, you need to leave something on the table because people respond to incentives. It is widely believed among economists that a sustained mild inflation isan essential incentive to drive long-term growth in an economy. It seems mild inflation is too little an incentive in a speculative economy we live in. The new economy seems to have learnt to induce 'flash inflation' to make instant money and leave in hurry, never mind the severe impact it has on the mainstream economy.
The success of flash inflation can be attributed to its unique style. To start with, it strikes swiftly creating an element of surprise. Before most of us realise its impact, flash inflation has probably passed leaving behind a brutal tale. With prices already below the peak by now, most of us feel relaxed that worst phase has passed. That is when the long tail of flash inflation really operates where traders get a chance to make the kill. To a trader, the collection is same if the demand has come down to half as long as the prices have doubled. The brief period during which prices are high offers is an ideal time to make money. By the time people respond, things usually come back to normal. Effectively, people are 'sold the news' to 'buy at high'.
Many experts argue about flash inflation being a new phenomenon in modern economy. It is not true, however. Its success is contingent with our slow response to sudden rise in prices. Flash inflation can be fought if we react to it collectively. We, the general public, have to learn the art of deliberately saying 'no'. Imagine the consequence if we collectively start saying 'no' to buying something if its price goes beyond a certain point. Though the idea may seem outrageous, saying 'no' is in fact a powerful economic tool that we use everyday. By deliberately saying no, we induce a sudden reduction in the demand of commodity, thereby sending a strong message in the market. This strategy is much more effective in the case of perishable commodities, such as food, which cannot be stored for a long time.
Flash inflation is a social menace that can be fought collectively - just like 'Save The Tiger' campaign. The next time prices of onion go berserk, irrespective of whether you can afford it or not, just say no and see the impact. Not only will the price come down as fast, the incidents of flash inflation will be less likely to repeat. Afterthought: The writer strongly feels that incidents of flash inflation are likely to systematically outcast the unorganised retail vendors forcing commoners to visit organised retail. It is aptly applicable to those small vendors operating on the streets from where Indians buy more regularly. The absence of uniformity in prices at such levels can drive common people to organized retail where price uniformity is guaranteed and bargaining disallowed. The unorganised sector must be wary of the trap.
The writer is Director, InvestCare, a leading wealth management firm. He can be reached at samar.vijay@investcare.in