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Journalism of Courage
Nothing will have dominated conversation as we head into the new year as much as food prices. Food price inflation during the third week of December 2009 hovered close to the 20 per cent mark,according to figures released on December 31. There is little question that it is beginning to pinch. And,as Finance Minister Pranab Mukherjee pointed out,third-quarter figures for farm production while not as terrible as once feared are unlikely to bring any degree of relief. But,as he went on to explain,there is little evidence that inflation is being pushed up by excess money supply. In other words,food is more expensive because of problems with its supply. And,as is explained elsewhere on these pages today,the root causes of those problems will only clear up when proper investment in farm productivity is incentivised.
But,the short- and medium-term issue is food inflation. And a fear has begun to gain ground that expectations of future inflation will begin to be a problem. In other words,individuals will begin to expect higher prices in the future; they will alter their behaviour and renegotiate contracts; and,thus,that higher expected inflation will feed back into actual inflation. The argument might appear persuasive,except that it doesnt appear to be supported by sufficient evidence. Are expectations indeed changing? Is that being reflected in new contracts? There is little to say that it is,and the anecdotal evidence runs the other way.
