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A Presentation of Food Inflation. This is based on the time value of money.
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© Gurukrushna Patnaik
Food InflationPrice Hike In Food Commodities
Gurukrushna PatnaikAIMIT,
Bangalore
© Gurukrushna Patnaik
Topics to Discuss• Price rise: An economist's view.
• Grocery Bill.
• Money Vs. Goods.
• Positive effect of Hoarding.
• Onion price rise – A critical issue.
– Way back in 2010 and history
– Situation at present
– What is causing the price rise of onions in India?
© Gurukrushna Patnaik
Price rise: An economist's view
• Rising prices are like a fire feeding on itself.
• In turn, it brings down productivity leading to
further inflation.
• In any discussion of food price rise, we take
drought, as a reason for it.
© Gurukrushna Patnaik
Tighten Your Purse Strings
© Gurukrushna Patnaik
Grocery Bill• High inflation has been pinching you for more than
a year now. Now, the weakening rupee has made crude oil, fertilizers, medicines and iron ore, which India imports in large quantities, costlier. Though these items are not for your daily consumption, they impact your finances indirectly.
• For instance, since India depends on imports for a large part of crude oil it consumes, a weak rupee will influence petrol and diesel prices. "Fuel being directly connected with the cost of transportation, prices of goods that are transported from one part of the country to another, such as food, are bound to rise. This will have a direct impact on the household budget.
© Gurukrushna Patnaik
1 Year Crude Oil Prices
Money Vs. Goods• In economists' parlance, the main culprit happens to be
inflation.
• If money exceeds the value of commodities available in
the market, the prices are bound to go up.
• Inflation
– Faulty planning with wrong order of priorities.
– Inadequate production of goods in demand.© Gurukrushna Patnaik
© Gurukrushna Patnaik
Cont..• Inflationary situation is further aggravated by
unimaginative import and export policies.
• Improper imports and exports to domestic market,
further increase in prices.
© Gurukrushna Patnaik
Positive effect of Hoarding• Monsoon is always the big issue.
• Observing less production, hoarders became overactive,
thereby leading to further price rise.
• Hoarders strike a balance between the current price and
future price.
• In late monsoon or less production, food prices rise
drastically.
• It is the hoarders who actually help maintain some sort
of an equilibrium.
© Gurukrushna Patnaik
ONION PRICE RISEA critical issue
© Gurukrushna Patnaik
Onion Price Rise• An onion, today being compared with
diamonds.
• India is the second largest producer of onion having 19% share of the global onion production.
• The price of onion has shot up from Rs 20 per kg to Rs 70 per kg in some parts of the country.
• 245% rise in the wholesale price of onion this year, has given an unpredicted turmoil in inflation.
© Gurukrushna Patnaik
Way Back in 2010• India had seen a dramatic increase in onion price
across all the markets in 2010.
• The cause of price hike was the delay in reaching
onions to the markets.
• Unpredictable rainfall that led to the shortage in the
production .
• Political stress was created.
• Hoarding and price increased by traders were also
blamed for the same.
© Gurukrushna Patnaik
Situations at Present• Due to speculations, traders might have increased
the price to earn profit.
• Traders exploiting and taking advantage of the
seasonal shortage in supplies.
• The supply of onion falls to 3,000 quintals on
Monday as compared to 6,000 quintals on
September 6.
© Gurukrushna Patnaik
Cont..• Wholesale price of onion increased per quintal from
Rs 4,140 to Rs 5,300.
• In Mumbai and Delhi the Wholesale Price increased
by Rs 1,000 per quintal.
© Gurukrushna Patnaik
Cause for Price Rise• Hoarding – Trader-intermediaries who operate in
groups encourage hoarding to keep the prices high.
• Mismanagement – Improper supply chain and needs to be managed for a regular supply.
• Inflation – Recent fuel price increase has pressurized the
common man to by household things.– increasing the minimum export price (MEP) would
help in lowering down the price of onion.
FAO food price index
© Gurukrushna Patnaik
© Gurukrushna Patnaik