A menace called inflation
Source : Google photo of inflation
Synopsis : We all have experienced paying more for everything we consume or use and have taken measures to deal with the menace called inflation. It means buying less or cheaper things that diminishes the quality of life. The menace of inflation is not easy to solve and bring under control because inflation is often caused by many factors over which the common man has no control. The government can help reduce it through some subsidy, price control, stocking of food and improve the distribution etc. but eventually the countrywide development can bring it under control.
When I was little, I used to go with my father to the meat shop where he bought his meat every Sunday. The meat seller was an old Muslim fellow with white beard who knew my father well and always gave him choice meat and charged only one Rupee for a kilo. In those days in 1950s, I think the exchange rate was 2 Rupees to a US dollar or less but let us say that the meat cost about 50 US cents per kilo , one liter of milk cost 25 US cents and so on. Anyone could buy meat or milk at that price but now the times have changed .
Today the same Rupee does not buy you anything in India except fading hope in a country where the inflation has literally taken the life out of ordinary living. Now the same kilo of mutton costs 300 Rupees which translate to 4.22 US dollars and a kilo of Hilsa fish costs about 71.00 US dollars making it so expensive that most people cannot afford to buy it.
I remember my Ma buying Hilsa fish ( belongs to herring family ) very frequently for one Rupee a kilo ( 50 US cents ) but the same now costs Rs. 1200/ kilo ( about 71 US dollars ). I used to buy all the spices and many other things our family needed for a month for about 30 Rupees ( 15 USD) but now the inflation has hurt people where it hurts the most — the stomach.
In those days in 1950 someone earning 300 Rupees a month ( 150 USD ) could pay for his rent and all the basic expenses , school fees for the kids etc. and still save a few Rupees at the end of the month but those days are long gone. Now everyone complains about the high cost of food and everything because the dramatic fall of Rupee vs the Dollar over the years has had devastating effect on people who are struggling to meet their expenses.
It is true that the basic salaries have also increased dramatically all over the country but the inflation eats up their increased salary because it does not show any sign of abating. The prices just keep going up and up and up leaving people behind.
In Pakistan one kilo of tomato costs 400 Pakistani Rupee ( 2.60 USD )and one liter of milk 500 Pakistani Rupees ( 3.20 USD ) so you can imagine how the common people struggle there to meet their daily expenses. It hurts the common people, it hurts the agriculture and it hurts the industries that have to import their raw materials at high costs due to tariffs and import duties. Their cost of production of manufactured goods has gone up so they have to raise the cost of selling them as well. They can’t survive if they can’t make a decent profit but it hurts the consumers just the same that ends up hurting the overall economy of the country.
What is expensive and what is cheap therefore depends on the income of the buyer. If you earn 8000 USD per month then everything seems cheap in India but if you are earning only 300 USD per month then everything is expensive. The expensive gasoline and diesel that runs the transport system makes ticket prices soar. The farmers raise the selling price of what they produce because of higher cost of seed, labor, electricity, fertilizer and related things so the food prices rise to absurd level.
Source : Google photo of a 4 kilo Hilsa fish sold for 22000 Rupees( 310 USD ) recently
What it means is that 70 years ago we had a higher quality of life, ate better food and enjoyed many things like Hilsa fish that people now can’t afford although materially people seem to be better off. Now every body has a scooter , moped or a small car, TV and a refrigerator in their house which we did not have in those days but we enjoyed a stress free life that has gone out the window.
We did not have the cell phone that is now called a smart phone linked to the internet but we visited our friends and neighbors and played together that has now changed completely. Now people seem to be more interested in their cell phones than talking to someone face to face and show signs of stress and loneliness.
Today all countries face this menace of inflation in varying degrees and try to cope with it as best as they can while some have fallen through the cracks of social security net because of poverty. People who earn a decent salary ( the definition of what is decent varies from country to country ) still feel the pinch of inflation because of high rate of mortgage payment and high cost of living, education, travel, recreation and abnormally high cost of healthcare . It leaves them with very little savings making them very vulnerable if a sudden expense crops up. We hear that even in developed countries, people tend to live on pay check to pay check and have very little cash reserve to pay for emergencies. The culprit is always inflation and very high cost of living.
My Ma used to say that anyone can and should live within their means but the allure of easy credit card these days makes people buy things they do not need ( Read my blog called The allure of credit card here ) so they get into trouble when they can’t pay the debt. So the margin of safety has narrowed dramatically for those who can’t manage their income and expenses.
The constant threat of layoffs due to slowing down of the economy is prevalent in many so called rich countries let alone other countries that are struggling due to high rate of inflation. The inflation does not depend on the local economy of a country any more because almost all countries are linked to other countries through trade so a change in the economy of one country affects another country that has trade links with it.
The recent spat between India and Malaysia over Kashmir shows how politics plays a role in trade relations between two countries. When Malaysia criticized India about the Kashmir issue, India banned the import of palm oil from Malaysia that accounts for over 50% of their GDP so it may have devastating effect on their economy . Similarly the trade relationship between India and Turkey have suffered when Turkey took a stand against India and lost billions of dollars of trade with India.
The rising cost of petroleum in OPEC countries for example immediately translates into higher price at the gas station in your country that has a ripple effect on the entire economy that is like adding fuel to the fire. A war that breaks out in the Gulf or even a threat of war slows down the sea transport by ships that start charging more for the delivery of petroleum to distant countries because their insurance cost rises drastically. It affects trade worldwide so every country starts feeling its effect.
We are so linked internationally that we no longer can live isolated like the North Koreans who have their own problems due to sanctions. The recent tension between Pakistan and India over Kashmir has negatively impacted Pakistan economy that was dependent on trade with India that has completely stopped so a kilo of tomato sells for 400 Pakistani Rupees ( 2.60 USD ) and may go even higher there.
The car makers in the USA now outsource most of their parts from various countries that they put together in their factory but the cost of manufacturing those parts can go up dramatically due to inflation so the car prices rise accordingly hurting the car buyer as well as the car maker. This holds true of many manufactured goods today because of this interdependence.
Various governments fight inflation by subsidies but such subsidies have to be paid for by the government through tax collection that is hard to do. If the priority of the government is to provide affordable food, shelter and clothing to all its citizens and pay for some subsidies to do so is good but its ability is limited to how much taxes are collected. Higher taxes to pay for the subsidies also hurt people because it diminishes their purchasing power thus affecting their quality of living so there are no easy answers to curb the rate of inflation.
The poor people fight inflation by tightening their belt but there is a limit to it. You may not be able to afford the costly Hilsa fish any more so you buy cheaper small fish , poor quality rice and eat less meat . What it really means is that your living standard takes a dive that takes a long time to improve.
But there is a silver lining in the dark cloud of inflation that dampens the spirit of people. This silver lining is called the rise of the middle class that then drives the motor of the economy and the country as a whole makes progress. When we were young and the country was newly independent, the size of the middle class was small so we were like the elites because our father was a chief accountant earning a very good salary.
Now I see that millions of poor people are joining the middle class and contributing to the growth of the economy by creating demands that the industries are eager to meet. This was not so when we were young. There were many poor people then and even the middle class did not have what they have now in terms of material wealth.
The only difference is that poor people in those days could survive and even manage to send their children to school. Many of my classmates were from poor families. But now the improved economy is creating the elite class that drives cars, lives in modern apartments, can go out to Malls , buy big flat screen TV and other such gadgets and even brag about the expensive smart phones leaving the poor behind.
The poor can’t go to the Malls or use the super highways that are for those who have cars and can’t eat in fancy food joints. They can’t send their children to high cost fancy schools and colleges and definitely can’t afford the modern apartments where the middle class people now live. Their daily challenge is how to get out of poverty and join the middle class someday so that they too can enjoy a higher standard of living.
If you read the Grapes of wrath by Steinbeck, you will learn how poor Americans were who were mostly share croppers in those dust bowl days who lost their farms due to crop failures and started moving west searching for any job they could find . Their education level was very low so they had very few job opportunities open to them but slowly that changed and America became a mighty industrial giant that started creating millions of jobs for people. Then came newer technologies that started to change the industries and created more jobs for the educated people. The result is jobs for most people and low inflation rate. It has not eliminated poverty entirely but reduced it.
So the secret to curbing inflation is not more subsidies and higher taxes to pay for it but more industries, improvement in agriculture to increase the food production and generate more and more energy through massive investment in the power generation through nuclear, geothermal, solar, wind, hydro power and other means. It means massive investment in the development of countrywide infrastructure , farm to market roads for the easier movement of the farm produce, storage and distribution facilities, new port facilities for export and import and new rail links to move freight all over the country at a cheaper rate. This is how a country develops and how India is making progress at a fast rate.
Eventually some day in the future there will be less and less poor people as the country makes progress so they too will be able to join the middle class. This is bound to happen so there will be less and less people involved in the farming sector when the poor people join the middle class and move to cities to find jobs. This has to do with the spread of education among the poor as it is happening in India and elsewhere.
The farm population in the United States has steadily decreased over the years due to this massive movement of rural people to cities and is also happening in India and China. While the growth in the middle class is good for the country, it will always have to fight the curse of inflation and try to keep it under control.
We will never again see the day when one kilo of mutton will sell for only one Rupee. Those days are gone forever because the value of money has diminished so much. The governments have to keep a tight control over the inflation through various measures. When it fails like in Zimbabwe, Venezuela or in Pakistan, the people will suffer and the currency will be worthless.
So we must all learn from the example of Japan, Korea and Germany that literally rose from the ashes of the war to become the most powerful industrial countries where people now enjoy high standard of living.
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