Rising prices tell a tale

Rising prices tell a tale
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First Published: Thu, Feb 08 2007. 12 48 AM IST
Updated: Wed, Jan 09 2008. 01 08 PM IST
We had asked in this column on Monday whether the sharp rise in food prices is a warning that food production this year will not be as good as expected. Fewer cereals, spices, fruit and vegetables are coming into the market, thus fuelling inflation. It so happens that the government said on Tuesday that it was scaling down its foodgrain production forecast by 5%. The point is that prices tell us a lot. They carry important information about the changing balance between supply and demand.
Rising prices point to supply problems. So the plan of attacking food inflation by imposing curbs on forward markets is a non-starter. Food prices are not being pushed up by evil speculators. Nor are the companies that have out-bid the public sector Food Corporation of India in the markets to blame. They have merely anticipated the problems that lie ahead—which is why they are called forward markets in the first place.
The sensible way to ease price pressures is by increasing supplies through imports.
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First Published: Thu, Feb 08 2007. 12 48 AM IST