The “red shoots” of stagflation are visible


‘The language of money’, writes British novelist John Lanchester in How to Speak Money, ‘is powerful and effective, but it is also both exclusive and exclusionary’. People who work in the world of money – fund managers, analysts, economists, stockbrokers, influential investors, all inclusive – like to speak in jargon-laden language because they try to project their expertise. And the experts don’t speak in plain language.

Ordinary people do not understand this jargon-laden language well enough to be able to discern what is being said. One such lingo is “green shoots,” a term used to refer to signs of economic growth or revival after the economy has gone through a troubled period.

Since most money men and women are in the business of projecting positivity 24/7, they’ve never really found the time to coin a term that’s really relevant. opposite of ‘green shoots’ – a term that would mean signs of economic problems.

Let’s fill that gap here. Let’s call the opposite of green shoots, “red shoots”. And now that we’ve coined a term, it’s time to use it.

The “red shoots” of stagflation are becoming visible in the Indian economy. The term stagflation is a combination of stagnation and inflation and was first used by British politician Ian Macleod in 1965 when he said in a speech: “We now have the worst of both worlds, not just the worst of both worlds. inflation on one side or stagnation on the other. the other, but both together. We have a kind of ‘stagflation’ situation.

So what are the red shoots of stagflation becoming visible? In a recent report, NielsenIQ pointed out that the volume of consumer goods sales fell 4.1% for the period January to March 2022 compared to the previous year. Some examples of consumer goods are soaps, toothpastes, detergents, shampoos, snacks, etc., basically everyday products that people buy.

Lower volumes mean that people are not buying as many units of these products as they used to. The volume of sales in rural markets fell by 5.3%. In urban markets, sales contracted by 3.2%.

This drop in sales volumes is mainly due to higher inflation. As a recent Kotak Institutional Equities research report points out: “Soaps have continued to experience price increases and [annual] inflation is now in the range of 25-50%. Other products such as toothpastes and detergents have also seen their prices increase.

What is interesting is that many companies make indirect price increases by reducing the weight of the product. As Hindustan Unilever, one of the largest consumer goods companies in the country, recently pointed out: “Almost 30% of our business comes from packs that run at magic prices like Re 1, Rs 5 or Rs 10 In these packs, our preferred way of dealing with the price increase is by reducing the grammage, so even the same number of units sold results in lower volume.

Nevertheless, while the volume of sales contracted, the value of sales of consumer goods companies increased by 6%. To put it simply, companies made more money despite selling fewer units of their products. This was mainly due to the price hikes they made.

Consumer goods are purchased by people from different sections of the population and a contraction in their sales volume tells us that inflation is hurting people badly and causing sales to stagnate.

A similar stagnation can also be seen in more expensive products. Sales of two-wheelers between January and March 2022 fell 23% to 3.35 million units, compared to the same period in 2021. That said, April sales jumped.

Regarding cars, RC Bhargava, President of Maruti Suzuki India, recently said: “The small car market, which is the ‘bread and butter’ of Maruti Suzuki India, is shrinking and the ‘butter’ of the segment left. He said potential small car customers were being squeezed out due to higher costs.

Recently released GDP data also points to a stagnating economy. Economic growth, adjusted for inflation, fell to 4.1% between January and March 2022, compared to higher growth in previous quarters. The GDP data also reveals that job-creating sectors like manufacturing and construction are not in their best shape. The manufacturing sector contracted by 0.2% between January and March 2022 compared to a year earlier. The construction sector increased by a minimum of 2%.

Nor do international factors inspire much confidence. The United States is on the cusp of a recession (essentially, two consecutive quarters of economic contraction). In 2021-2022, the United States was India’s top export destination, with overall merchandise exports amounting to $76.2 billion.

China’s continued zero-Covid policy has meant that many global supply chains continue to remain broken, fueling inflation. At the same time, the lockdowns in China will slow Chinese growth, which will also slow global growth.

There are enough red shoots pointing to stagflation. But this is something the government is not yet ready to buy. Chief Economic Advisor V Anantha Nageswaran recently said that the risk of stagflation for India is lower than for other countries. As Martin Amis writes in his novel L’Information: “The denial was so great. Denial was the best thing. Denial was even better than smoking. The question is, will denial work in this case? Let’s wait and watch.

Vivek Kaul lives to read detective novels and unlike his honest ancestors makes a living writing about the economy @kaul_vivek

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