If a minister comments in Parliament that the price of a commodity was expected to rise, one can be sure that such an observation will fuel inflationary expectations.
What about a situation where ministers say they expect prices to come down? Could that lead to a decline in prices? Are ministerial statements magic devices that command prices? Not really.
On Wednesday, finance minister Pranab Mukherjee and agriculture minister Sharad Pawar said they expect prices to moderate in the next few months.
Inflationary expectations are based on inflation that exists in one time period and influences that economic agents feel can fuel or dampen inflation. When Pawar made his statement about sugar prices going up, he did so when inflation was already high. That fuelled inflationary expectations. His statement on inflation moderating comes at a time when food price inflation is still going north.
Currently, prices tell people a different story and the ministers’ statements will be discounted against the background of rising prices. Sorry, this ain’t no magic flute.