We pay an amount and buy things we want to have. What if the amount spent to buy two pens earlier can now fetch you only one? This change is what we refer to as price hike.
Though all of us experience it frequently as rates of things change over a period of time, it turns worrisome when purchasing power does not increase at par with the shooting prices of commodities. It is an economic phenomenon both easy and complex at the same time.
Price Rise is termed inflation in economics and is a necessary evil. Necessary as long as it denotes progress and improvement in per capita income and consumption. But it becomes an evil when the rate of inflation is too high leading to devaluation of money. Due to inflation your savings would be used up and the effective interest earned too would be meagre.
Markets and its ways
Markets have a cycle of demand-supply, where price of an item depends on several patterns. Firstly, on its quality, secondly on it quantity in the market, thirdly on the demand or popularity of the item and fourthly on affordability of the buyer. Any of this factor if altered independent of the other creates a chaos.
Consider a man with surplus money, he would think little about the price and would rarely bargain. If too many people have more money this leads to overall increase in cost of goods. Similarly, if goods are not in surplus to sell them their rates are raised so that only those who can afford it would purchase it.
High quality products are priced so, as they are made of best and costly subcomponents and skills. Whereas at times the trending items like unhealthy but popular junk food like burger and pizza are priced way too high.
Causes of Price Rise
There are multiple reasons for Price Rise and emergence of above patterns in market like the following:
Ineffective distribution: Even when agricultural produce is sufficient in a country, in few regions of production goods would be cheap. But due to high transportation and storage cost in another region the effective rate ends up increasing steeply.
Black Marketeering/Hoarding: With surplus produce of essential items some wholesalers procure huge amounts and create artificial shortage of goods in market. Due to high demand the rates increase.
Unwanted Taxes: Government machinery to generate revenue on interstate goods, till they reach the customer add unnecessary taxes and tariffs, thus soaring the rates.
Natural disaster: In times of famine and flood like disaster the economy is hit badly as people are in crisis, resources are destroyed and transport facilities are choked making ordinary items also very expensive.
Man-made disaster: In situation of war or internal security crisis as in naxal region, or border areas and rugged terrain, goods take more time and money to reach people due to security issues and time taking checks and clearance by military thus multiplying their costs.
Corruption: Bribes that are given to corrupt official and misuse of power while checking at export/import centers, falls as a burden on the end user when they purchase any product from such a system.
Global Market Trends: Items like crude oil are affected by global market trends, little change too has ripple effect as all industries are dependent on it for fuel. This impacts price of goods when they leave factories. And every other industry in line using the products increase the costs in tandem.
Non-Performing Assets(NPA): The increasing NPA lead to crisis in market with shortage of money for genuine businessmen and blocking of huge sums with no hope of recovery. This shoots price of commodities.
How to fix it?
Improving the process: Manufacturing, Procurement, Storage, Transport, retail each step requires overhauling to be inflation proof. Strict punishment for hoarders and Black marketers that sets an example and deters other such people in society. Corruption in government offices should be scrutinized and accounted for.
Use of digital modes of payment for increasing accountability and checking profit margins incurred at various stages. Infrastructure development in hinterland and sensitive areas for effective in time transport. Strict bank rules for credit and loan facility.
Improved policies by central bank (RBI) and market regulator(SEBI) to manage flow of money in economy. Right political intention and will of system to curb this menace and make nation economically strong. Price rise affects every section of society immensely, lowering the moral of population and requires to be dealt with an iron hand.