By-SUNMEET KAUR & GUNJAN BUDHLANI

€ To € To

understand the concept and causes of inflation.

understand the effects of inflation on the economy & on the business. know the buying behaviour of the consumers during the period of inflation and the strategies which are adopted by the business firms specially FMCG firms to tackle with the situation. know the measures taken to control the inflation

€ To

€ To

each unit of currency buys fewer goods and services. also reflects erosion in the purchasing power of money. the general price level rises.€ Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. € When € Inflation .

€ Creeping € Walking € Running € Hyper Inflation or Trotting Inflation Inflation Inflation € Semi-Inflation € True Inflation .

€ Stagflation € Sectoral Inflation .

€ Different schools of thought provide different views on what actually causes inflation. ƒ € The . general agreement amongst economists is that inflation may be caused by: either an increase in the money supply or a ƒ decrease in the quantity of goods being supplied.

€ This € It . can be summarized as "too much money chasing too few goods".€ This refers to the idea that the economy actual demands more goods and services than available. shortage of supply enables sellers to raise prices until equilibrium is put in place between demand and supply.

cost of production can rise because of rising labor costs or when the producing firm is a monopoly or oligopoly and raises prices.€ This theory states that inflation occurs when the cost of production rises and the increase is passed on to consumers. and external factors. cost of imported raw material rises due to exchange rate changes. such as natural calamities or an increase in the economic power of a certain country. € The .

€ Hoarding € Distortion of relative prices risk € Increased € Increase in tax bracket € Lowers national saving .

and the inflationary environment has increased this tendency. shoppers prefer larger packs of consumer products. rather than seasonal sales in order to economise prefer to purchase larger ¶value' packs to save. € Indian € Consumers .€ Indian consumers have always been value conscious.

and 40% at locations close to their homes and offices. of the Indians see an advantage in shopping at value retailers. € 41% .€ Consumers actively seek out deals. or even switches stores to avail of deals or better value.

b) Tea Companies: Tata Tea and Duncans Tea have also hiked prices for select brands in their stables.€ Increase in price a) HUL: Hiked the price of its detergent bar Surf Excel (120 g) earlier known as Rin Supreme from Rs 13 to 15. . c) Britannia: Hiked the price of its popular brand ¶Britannia NutriChoice Digestive· from Rs 14 to 15.

Procter & Gamble: Have reduced the pack size of its flagship detergent brand ¶Tide· from 1 kilo to 850 gm while maintaining the price point at Rs 62 .€ Introduction of lower SKUs Henkel: Introduced a new 400 gm pack of Henko washing powder at Rs 40 and withdrawn the 500 gm pack that used to sell for Rs 46.

.€ Cost Cutting Strategies a) Companies are busy in strengthening their distribution and logistics. by bringing in more efficiency and innovation in the supply chain. c) Soap companies have shifted to cheaper options of raw materials to source their products at a competitive price. d) Some companies have cut down their spends on advertisement. b) Companies are closely monitoring their stock levels and loading patterns.

agriculture and production. PepsiCo is aligning its beverages and snacks businesses under a common leadership. This will help them to maximize synergies of the two businesses across key functions such as procurement. This will help them to minimize the price . which will lead to production efficiencies.€ Restructuring to leverage synergies: With the ¶power of one· strategy.

a)Monetary Measures Monetary measures used to control inflation include: (i) bank rate policy (ii) cash reserve ratio and (iii) open market operations. .

government expenditure and public borrowings. cereals and oils to support the domestic consumption. government can also take some protectionist measures such as banning the export of essential items such as pulses.b) Fiscal Measures € Fiscal measures to control inflation include taxation. € The . encourage imports by lowering duties on import items etc.

621 8.056 8.427 8.412 8.823 8.989 8.823 .721 9.CPI in recent months (2011) Period 2011 November October September August July June May April March February Inflation(%) 9.392 10.341 9.

167 3.€ CPI in recent years Period November 2011 November 2010 November 2009 November 2008 November 2007 November 2006 November 2005 November 2004 November 2003 November 2002 Inflation(%) 9.067 3.950 5.334 4.512 5.448 5.602 .333 13.514 10.341 8.

steel and other commodities being the culprit. such as an increase in commodity prices. with global prices rises in oil.€ Inflation has become a major concern worldwide in 2008. non-monetary sources. food. € € . While money growth is considered to be a principal long-term determinant of inflation. have played a key role in triggering inflation in the past four decades. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.

€ High .€ Effects of inflation includes a decrease in the real value of money and other monetary items over time. inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future . uncertainty over future inflation may discourage investment and savings.

and e-tail grocery stores are slated to emerge as a viable channel for shopping as well as an important way for retailers to differentiate themselves while reducing costs. saving tactics is critical for today's time-starved shoppers. rather than seasonal sales in order to economise.€ The credibility of inflation control policies can often be enhanced by the introduction of inflation targets. € The € Time . Indian consumers will prefer larger packs of consumer products.

mergers & acquisitions. . introduction of lower SKU·s.€ The strategies which are adopted by the FMCG companies includes increase in the price of commodities. cost cutting strategies. restructuring to leverage synergies.

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