Economists believe inflation cuts real variables...

Economists believe inflation cuts real variables like real wages, interest rates, and exchange rates in order to gain competitiveness, but it is against the law of demand that lower prices increase demand and higher prices lower demand... Nonetheless, inflation expectations are self-fulfilling... Moreover, a country where the value of money is losing 5% every quarter shows a weak supply side or high demand... Higher interest rates can control food and fuel inflation through higher unemployment and lower economic activity... Inflation means food and fuel inflation because they reduce poor people's real wages and savings... and investment in the economy... and lower supply means further higher prices... If Inflation is 5.4%, nominal growth is 10% and real GDP is much low due to high inflation... unemployment rate is 8%... The rate cut is justified to increase the 5% growth rate...

 

We are losing competitiveness fast due to food and fuel inflation because they add to inflation and higher wage, and interest rate expectations... Other things constant, inflation and a stable currency would not let exports grow because prices would increase relative to the rupee exchange rate, which would lower export demand... If we really want to increase demand and growth in real terms we should improve productivity and competitiveness where we are weak, in INDIA's case food and fuel inflation... If we had a good supply in INDIA we could expect that lower borrowing costs could increase supply and lower prices and increase demand and growth and expectations... But, India is both demand-dominated and/or supply constrained, inflation tells the story...

 

INDIA is demand-dominated and supply-constrained because of higher prices and interest rate expectations even though we have an 8% unemployment rate and the economy is overheating when there is excess labor supply, we could imagine inflation at full employment which is directly not achievable since full employment would further increase demand and prices... RBI Guv’s never helped include the unemployment rate in the RBI commentary since growth results from trade-offs between inflation and unemployment... What is INDIA's full employment? It is important for inflation, interest rate, spending, growth, and expectations.

 

The Government may bring instruments that could prove attractive to delay consumption, small sacrifices, paid fast and higher, could help lower inflation. During inflation, spending could be reduced by aiding savings... poor people's savings... Saving ideas must be attractive to beat inflation...

 

Due to poor supply and high inflation, India is losing its competitiveness fast. High inflation means that money is losing value fast, and spending will go down. Due to high borrowing costs and further lower supply, prices will increase again. It is cyclical...

 

Inflation is a loss in competitiveness and demand, it makes people poor... The argument is that inflation cuts the value of real variables like real wages, interest rate, and exchange rate and increases competitiveness to increase investment demand at the cost of devaluing savings and since the capitalists save themselves... the trade-off involves the choice of lowering the value of money to increase investment and employment... which lower real wages and demand... IS FLAWED... Inflation creates inflation expectations means the trend of losing the value of money would continue... A simple hospitality worker gets a $ 200 tip a day in Germany, but Indians are struggling to earn the same in a month... There is no end to lowering the value of money... The trend we have observed is that in rich countries the value of money has increased over time with a lower population growth rate and good supply side... Poor people lose savings faster than rich due to inflation and expectations...

 

INDIA is losing its competitiveness fast since the exchange rate is relatively stable. Other things equal, higher inflation means a loss in productivity, competitiveness, and demand. The rupee is stable, but inflation is increasing, which means a loss in comparative advantage and market share. Simply, higher inflation means lower demand, but higher inflation expectations mean further higher prices because people would prepone demand and push prices further. If people expect that domestic inflation is going to increase but the exchange rate would be stable they would consider it a loss in purchasing power in future if the rupee does not depreciate...

 

As far as Chinese competition is concerned, most notably Indian products might not be a cheap and better substitute for Chinese products... We are a cheap currency, and we have an advantage in the Chinese territory, too... But investment is not there, especially in terms of scale. If we produce at lower prices, the same products, then only we have a scope to increase market share... Even when Chinese products involve transport costs and import tariffs... INDIA's 4% inflation tells that we could expect the INR to depreciate 4 % to keep exports competitive but only inflation has made exports uncompetitive but currency is stable... Inflation and higher prices mean that we have lost competitiveness... Higher prices mean a loss in demand and growth and expectations...

 

Supply is increasing and population growth is going down, a phenomenon observed in advanced economies that points to a special quantity theory of money where supply increases and prices fall due to lower borrowing costs..., which means low price expectations... To lower inflation it is important to create low price expectations for the future... Higher interest rates/borrowing costs might increase cost lower supply and increase prices... INDIA is food and fuel supply constrained... Prices are too volatile creating uncertainty for growth... Both, are in the hands of the govt... Provide DBT for ration and reduce taxes on fuel which is also a kind of spending... Without savings and without printing money same investment is not possible, printing money means more inflation, lower investment, and supply further increased prices... The special quantity theory is a long-run trend...

 

The divergence in the share of wages, profits, and taxes provides evidence of the growing monopolisation of the economy. 4-to 5 companies are dominating the whole credit, though business is done by way of loans only, it is the central bank's money... Savings of the poor are either taken away by profits or taxes... The government is too a big monopoly... Businesses instead of increasing productivity find excuses for raising prices and the same with the government and taxes... People are supporting an uncompetitive business and government... With time production and supply shall increase and control prices when population growth is decreasing, but profiteering and taxes have spoiled the demand... Greed is also self-fulfilling because it makes people poor, poor men will be greedy...

 

INDIAN cannot benefit from low interest rates abroad as the banking sector is protected from foreign money... At this nascent progress, this could be a boon for foreign investment... INDIA is 80 times in terms of currency and wages... which could solve the unemployment problem... INDIA should follow the model of a strong currency and cheap imports...

 

INDIA's not even in the top 50 of the top real per capita income countries, though it has the largest labour pool and youngest population... Without investment, we cannot cash on the country's comparative advantage...""India ranks 158th in the world for its investments in education and health care as measurements of its commitment to economic growth, according to the first-ever scientific study ranking countries for their levels of human capital. Why give tax?

 

Low growth and expectations give space to low inflation expectations due to lower economic activity and a slowdown ahead. Lower actual growth than the projected growth rate would lower expected growth, and low investment could be self-fulfilling. Low inflation expectations due to a high base and low growth could be verified by the RBI before cutting interest rates."

 

There are enough poor people's votes and space to work for their betterment... Caste politics for votes is an outdated idea, reservation should only be given to poor people... There is a great divergence between the number of educated people and spending in INDIA and abroad... INDIA has mastered the art of providing unproductive jobs for unskilled labor in agriculture and construction which lies in the unorganized sector... More than 50% of the labor market is unorganized and informal where the minimum wage is too low...

Food inflation has been a headache for governments since 2010...

Every year, floods, limited irrigation resources, bad food distribution and procurement policies, and missing storage facilities threaten financial stability, leading to higher wage demand and higher price and interest rate expectations... Food inflation is the main cause of inflation expectations in the economy... People say higher interest rates would not control inflation, though higher unemployment might reduce demand and inflation expectations...

Interest rate controls unemployment and demand, therefore it is wrong to say that it would not control food inflation... Lower interest rates and higher employment would increase demand for food and vice versa... Nonetheless, food and fuel inflation directly adds to prices and wage demand, though inflation expectations are also self-fulfilling through a wage-price spiral... We need to break this because inflation means a loss in competitiveness, demand, and growth... Inflation and expectations reduce demand - people spend less and also save more for the future- though low prices and expectations increase spending and also reduce future savings... Inflation lowers spending and lower prices increase spending... A loss in the value of money lowers spending and savings, and a higher interest rate is compensation, inflation also lowers exports...

Food inflation and high imports, especially edible oil and pulses tell the real story... INDIA has a deficit in food supply and pledges to be a food surplus country by 2047... False comments could not sway people who read and access the internet... It is more important to make people conscious and aware of the facts... it is the duty of a citizen... We are in an age which could spell trouble for liars, though the information could be changed too by people in power, it is a personal experience... If you raise you voice against those your survival would be in question...

India's food inflation is seasonal; it happens every year. The government of India demands too much for its public distribution, which increases the cost of supply and storage problems, which should actually be done through DBT."

After Covid all countries experienced inflation, but food inflation continued to remain high in INDIA even after years... All countries including China and the US controlled food inflation...

INDIA's inflation is not on a glide path it is sticky at 5% and given the 6.5% policy rate, the real rate is 1.5% which does not make room for big rate cuts... INDIA's supply side is not up to mark therefore we cannot assume that lower borrowing costs would increase supply and disinflation expectations which would increase demand and inflation expectations and could further increase inflation...

What an idea if inflation is high due to food inflation, reduce food weightage in the CPI... excellent to drive monetary policy with an agenda, and reduce interest rates when inflation is still 5%... If income is increasing 10% a year, 5% of inflation would be would be like a 50% tax... The inflation target should be 2%... Higher interest income is just for higher inflation and could help reduce spending and inflation... If the RBI reduces interest rates, it is a different matter...

In August 2024, without the base effect, the situation becomes even worse, 3.54% is on the 5.08% base and if we replace the 5.08% base with the 0, the base effect would gone and the inflation would be 8%...Probably if we calculate inflation on the same base year as the last print inflation would be 8%... We see not inflation but rate of growth of inflation...

Inflation is low given the base effect as the base on which the inflation was calculated was higher than normal. However, if we calculate inflation on the same base year on which the second last month's inflation was calculated we get a higher inflation print that may be double what we get now... Food inflation and taxes on fuel are hurting the (real) wages and demand and productivity... When inflation is high the central bank must compensate through higher interest rates... There is no other way of protecting financial stability... and loss in demand...

When we have high inflation and interest rates, how the economy would behave? The media and some people think everything is hunky dory, election season is over let us face the reality now... Inflation and unemployment, the twin objectives of the economic policy are on board negative...

RBI often considers base period as potent justification for low or high future inflation or expectations... it just got it right this time that September inflation would be high when it explained the cause of too low inflation in August which generated higher inflation and interest rate expectations... which underlies the RBI's understanding of prices/inflation and expectations.. If RBI could rightly predict inflation, it could bring a lot of certainty to the business group investment decisions... and most importantly interest rate decisions and expectations... it directly adds to spending and growth, though information about prices affects everybody... when have money... profit from a price move or motive... We do not always want higher prices buyers need low prices and sellers need higher prices, but the actual outcome would be only in favor of one this time either buyers or sellers... Time chooses the winner between sellers or buyers... in the short run...

Demand and Supply are Intertwined...

 Like recession, periods of high growth are also self-reinforcing due to EXPECTATIONS. This time inflation expectations, in the US were that it would subside soon, therefore people did not cut spending. The memory of the last decade's lower than 2% inflation reinforced those expectations.

If we know the expectations we could avert a negative outcome or even reinforce a positive outcome by the way of some economic stimuli.

This time people believed that inflation would come back soon so they did not cut spending and it did not cut the supply by lowering employment which kept reinforcing lower price expectations.

Prices are the oldest most reliable indicator of recessions and low prices could soon turn into a full-fledged recession, and the Fed thinks that may help avert a recession by cutting the interest rates.

Nonetheless, price expectations could help manage demand, supply growth, and expectations. It is a dichotomy that high price expectations are managed by high interest and lower price expectations by lower interest rates due to stress on the demand side and could reinforce expectations.

However, from a supply-side perspective, high price expectations must be dealt with by lowering interest rates and lowering price expectations by increasing interest rates, which could diminish expectations by affecting the productivity of capital, demand, supply, and growth.

The work of central banks is to reinforce positive expectations and diminish negative expectations though it is a time consistency problem since at times it wants high inflation and sometimes low inflation because prices are variable.

Nevertheless, it is a long debate whether we are managing demand or supply, but both are intertwined. During low growth, demand, supply, and price expectations we cut interest rates and during high growth, demand, supply, and price expectations we hike which could be self-fulfilling and could be avoided by maintaining stability in the interest rates.

Stocks’ Nash Equilibrium

Speculators bet on market behavior in order to gain from an investment though everybody is speculating on one thing or the other and largely all are investing time and money on something in expectation of something, nonetheless, it is largely not pointed that speculators’ behavior makes the market behavior that their aggregate actions decide where the markets would move which depend upon their expectations ie aggregate expectations and that is how the subconscious of the market works or the underlying subconscious of the investors. The aggregate expectations decide the market behavior and actions and outcomes based on the available information. On a micro level, a person increases spending and investment if he sees that prices are going to go up in the near future and vice versa and we could easily generalize it on a macro level that people increase spending or investment when they expect prices to go up which actually increases the price and the other way, too. That is, aggregate expectations and actions are self-fulfilling. 

Inflation and interest rate changes are self-reinforcing, higher inflation means people would demand more and supply would go down and prices would go up again and a higher interest rate means lower employment and demand and supply, too, which further increases prices. Demand and supply are not two, the person who supplies, demands, too. Our ability to supply depends upon how much we demand, what we demand is what we supply, and if demand goes down supply goes down, too. Demand could not be met without supply. Maintaining stability proactively fosters the central bank's credibility and for stability; a top and bottom of inflation and interest rates are assigned to manage demand and supply. At the bottom, everybody would increase demand and at the top everybody could supply which would help stabilize demand and supply and prices and interest rates. Prices and interest rates would move around the Mean or Average of the demand price and the supply prices. It would help reduce uncertainty about prices and demand and supply. Everybody would demand and supply at the same price or interest rates and maximize returns. Excess demand and supply determine future prices. Prices and interest rate expectations could increase volatility, but the central bank's job is to curb this volatility. 

Stock Market is a place where the purpose of bids and offer is to maximize gains from trading shares and require a strategy to satisfy all which is commonly missing, since in the stock market everybody misses the lowest buy price and highest sell price in the short run which leads to missing the long-run highest price targets. Most people regret to buy at higher price and sell at lower prices in the short-run. Both, the people who are buying and selling and even the companies want higher prices for their shares, there is no opponent, everybody is a trader which requires strategy to benefit all by increasing price of a stock. Everybody needs a strategy to excel in the stock market so that prices reach high prices range in the short-run.

If everybody follows profit maximisation behaviour, returns for everybody would increase... Means that people shall set buy limit order lowest of the price range and set sell limit order highest of the price range... If everybody does the same profits would be maximised...

Everybody wants to invest in the stock markets, but very few know that if they follow the profit maximisation behaviour they might be able to get the maximum returns… Yes, if everybody set same buy limit price (lowest) and set same sell limit price (highest) according to price range, profits could be maximised and everybody would gain…

If everybody follows profit maximisation markets could stabilise because when prices are significantly low investors could buy which could increase prices and when they are significantly high investors could sell which could lower prices...

If everybody sets a same limit price for buy and sell, everybody would gain... bid price should be the low price range and the offer price should be the high price... It is like giving some bargaining power to the investors if investors bid and offer at same prices... It would help predict stock prices right…

The strategy of a stock market has not originally taken from the Nash Equilibrium but has semblance with the theory and the strategy discussed here satisfy all Nash Equilibrium conditions that a participant has no incentive to move away from the optimal market strategy for two players, in the stock market the buyers and the sellers.