I came across this beautiful article on inflation. I thought it captures the problem of inflation so well.
We are caught up in consumer price index (CPI) and wholesale price index (WPI) numbers. We don’t see the big picture.
For example, everyone is making easy money in real estate.
What? You have not bought a investment house yet? Why?
Take a loan, buy a flat, flip it in 4 years. Make a fat packet.
You would be a fool to say no. Right or wrong?
Inflation changes the behaviour of mostly everyone. It steals from some and rewards some unfairly. If you choose to sit out, you lose. You feel encouraged to join the game. Sometimes, you may feel there is no other option.
This is something that the Reserve Bank of India or our finance minister Chidambaram never bother too much with.
Think the real estate boom. You are looking at asset inflation. Think rising vegetable prices and it is price inflation in goods.
Chidambaram’s lofty statements
“As we see the situation in India, inflation has come down,” said Chidambaram.
He said that even agriculture labour inflation and core inflation has come down. “WPI Headline Inflation has come down below 5%. CPI based inflation is also coming down.”
– May 23, 2013
Now, unless you and I live in a different country which is not India, I don’t know what he is talking about when he says CPI is coming down. It is still 9% plus. A few decimal points of decrease in the CPI is not what we need.
For long the government has been saying inflation will come down. It has not. Fiscal mismanagement and unbridled credit growth in the past has led to a horribly placed Indian economy.
Theodore Dalrymple speaks
Here is a sample of his brilliant article,
But asset inflation—ultimately, the debasement of the currency—as the principal source of wealth corrodes the character of people. It not only undermines the traditional bourgeois virtues but makes them ridiculous and even reverses them. Prudence becomes imprudence, thrift becomes improvidence, sobriety becomes mean-spiritedness, modesty becomes lack of ambition, self-control becomes betrayal of the inner self, patience becomes lack of foresight, steadiness becomes inflexibility: all that was wisdom becomes foolishness. And circumstances force almost everyone to join in the dance.
You should read Theodore Dalrymple’s piece on inflation in City Journal.
Don’t miss it. And if someone has the FM’s email ID, please email him too.