The lower the prices the more we can buy. Makes us richer.

Earlier this month trade unions called a strike against rising prices, while business leaders and bond markets expect a cut in interest rate because of low inflation, which means falling prices. Our Commerce Minister called for a 200 basis point cut in interest rate. This seems to have surprised our pundits who set out to solve the puzzle. Actually, prices are not falling. Retail prices are rising by 5.05%, much less than 10% during the Congress, but growing nonetheless. Wholesale prices rose by 3.74% in August, the highest in 2 years. We know the usual arguments. The lower the interest rate the easier it is for companies to borrow money from banks to set up new capacity, increasing jobs and stimulating economic growth. Food and fuel have a very high weightage on retail inflation and these are not controlled by monetary policy because they are dependent on supply. Increase supply and prices will come down. Not true. Because if prices keep rising wage demand also increases and this feeds into general inflation. The authors calculated how food prices affect the poor and the rich differently, based on figures published by the National Sample Survey Organisation. They found that 55% of the richest 5% live in cities while 85% of the poorest 5% live in villages. The abject poverty in rural areas was vividly illustrated when villagers made off with 'khaat', or cots, at a Congress political rally in Deoria in UP, not having understood a word of the speech by Rahul Gandhi. The rural poor spend 61.88% of their total consumption on food and beverages while the urban rich spend only 23.35%. The rich need to eat less because they do less exercise but in absolute terms they probably spend much more on food and beverages because they may look for organic or imported items. The poor eat more grains, which are cheaper, but earn much less and have to eat a large quantity because of the enormous physical labor they have to put in. Low interest rate helps the rich to invest in assets, such as real estate, which pushes up costs and rents. 50% of urban households and 10% of rural households are landless. Paying rent is completely unproductive and increases poverty. Only 3.2% of Indians are middle class, 2.6% are low middle and 0.6% are upper middle, 19.8% are poor and 0.1% are rich. The vast majority, 76.9% of Indians are in the low income group, which means that they can become poor if an emergency, like a hospital admission, suddenly strikes. This small number of rich people control 54% of total wealth of India, much of which is in real estate. No surprise that they want low interest rates. However, if people get less on their savings, while prices keep going up, they will resort to hedging. Which means buying gold. If you control prices people feel richer. Why is it so difficult to understand?