Sunday, June 22, 2014

The chemistry of price hikes

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Commerce is an inevitable ‘for-profit’ social service. Even many components of ‘not-for-profit’ social services as well as services from the public institutions are also being influenced by these commercial services. In this context, one of the greatest challenges being faced by people all over the world is price hikes. The demand for price hikes and consequences of price hikes are nightmares of almost equal gravity. 

In open economies, which are driven by market forces, price hikes happen as a response to the internal as well as external demands. Consequently organizations and governments that deliver ‘not-for-profit’ services and public supply systems are also being forced to hike prices in the respective areas.

Most often price hikes cause inflation, because, after price hikes, people will get only fewer things for larger amounts. Irrespective of the fact that whether the price hike happens to major or minor commodities and services any price hike will trigger a chain reaction of hikes. Any such chain reaction will accelerate inflation. Ironically, this inflation would nullify the scopes for additional revenue expected by those who demand price hikes within a short span of time and that in turn creates further demand for price hike. 

Still price hikes may become necessary in an economy. In such cases, for the prosperity of any economy, the demands for hikes have to be analyzed scientifically and its causes have to be thoroughly examined to identify the effective mitigation measures.  As we discussed earlier, the factors that generate demand for price hikes can be internal as well as external. The internal factors can be like the internal policy environment, strength of the organization structure, efficiency of business transaction, promptness of the technology being used, wrong priorities, attitude of the management and the workers, demand for more wages and facilities etc. External factors can be like external policy environment, shortage of raw materials, price hike in some other elements in the supply chain, social issues, climate conditions etc. There should be efficient systems to correctly locate the factors that trigger the demand for price hikes and suggest effective mitigation measures other than price hikes. It is not the responsibility of governments alone, each industry and industrialist should take up this responsibility. Only then world can ensure an enabling ecosystem for economic prosperity.

Under any circumstances, price hikes should be like taking a deep breath during a strenuous work, it should not be like artificial respiration for long. We have to carefully watch and nourish economy timely to avoid the situations wherein it requires artificial respiration.

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