Rising prices of consumer goods and services

PRICES IN India have continued to rise, especially of consumer goods and services. Prices of consumers’ goods are likely to rise further over the next six months, according to the Associated Chamber of Commerce and Industry of India (ASSOCHAM).

Over 80 percent of the business leaders, who participated in the survey, expected higher prices especially of consumer durables, consumer non-durables, intermediate goods, capital goods and services and infrastructure.

It is said that while private sectors firms remained upbeat about the price rise of their products, the public sector firms were not so optimistic about the same in near future. It is also expected that the various strategies will not help to check inflationary pressure during the first half of the present fiscal (20010-11).

The reasons for this rise are core and non-core factors. The basic core factor to push the prices to high level is petrol and diesel. The only way to control these prices, in the short period, is by lowering down the liquidity, which can be done by increasing the interest rates. But once the interest rate become higher, the liquidity comes down, and people buy less.

Lesser is the demand, lower become the prices. This is one side of the story. Lower demand also has an effect on employment, and thus on growth prospects. In fact, it is a dilemma in the sense that higher interest rates affect both demand and supply, and, therefore, the Government has to find an optimal mix of demand and supply situations in the country.