Markets rise on speculation and fall on fear. These are spikes that are impulsive in nature. They do not necessarily reflect the real conditions but the fear and speculation of traders.
This argument can also be applied to Inflation and more directly to prices of goods we purchase.
Member of Planning commission Abhijit Sen said that India may not need to import wheat and rice this year, as it is heading towards a record production.
Now this statement is a speculation (definitely not a fact) that can affect domestic markets as well as international markets.
Domestically traders with advanced data of weather and also data about stock piles of rice and wheat could react in two ways.
Traders may raise prices of Rice and wheat because they know for sure now that Government is not planning for imports and if weather data for this year runs contrary to what member of Planning commision says, then prices may rise further causing inflation to inflate further.
Intrenationally traders may take that (message of planning commission member) differently and cut down production of Rice and wheat speculating low demand for the same.
The member of planning commision should keep both options (importing or not importing) open all the time to keep in check the prices.
Government should scare the traders by keeping the option of import threat. This should very well be done in case of rising cement prices (Top cement producing companies alleged to have created a cartle), rising steel prices (Government have stopped exporting iron ore and this should help prices to subside), rising edible oil prices etc.
Filed under: Finance India, India blogs, Indian Bloggers , cement prices, edible oil, inflation, Planning Commission, steel prices
