Opinion

World’s most famous detectives solve the inflation mystery

There is a new cereal killer in town. Everywhere he goes, he leaves 10 bps of inflation behind. The RBI has become the new FBI, trying desperately to find the identity of the killer.

After many unsuccessful attempts at nabbing him, the RBI decided to take advice from the world’s best brains on the matter. And it is thus that a slim man in a tweed suit and deerstalker hat strode into the RBI, as always, accompanied by Watson.

“The inflation is now breaching 7 per cent, Mr. Holmes,” a visibly disturbed RBI Governor began talking. “Another 10 bps will be simply intolerable! We have done everything in our power, including a 40 bps increment in repo and a 50 bps increment in the CRR. Please help us, dear Sir!”

Holmes stared at the roof, as if seeing inflation push through it. “The problem is in the supply side of the story, and you are attempting an arrest through demand modification. Interesting. And perhaps, there was too much of a lapse in changing the rates?”

The Governor’s attention had been keenly aroused by Holmes. “You consider that to be important?” he [Governor] asked. “Exceedingly so.” The Governor paused, “Is there any point to which you would wish to draw my attention?” Holmes looked at him in his eye and said, “To the curious incident of the MPC meeting in April 2022”. The Governor was puzzled. “The MPC did nothing in the meeting of April 2022.” “That was the curious incident,” remarked Sherlock Holmes delicately. The Governor sat up and said, “But how could we have possibly changed anything, unless, unless you are saying that you could have guessed even then who the culprit was?” Sherlock was quick to reply, “I have no data yet. It is a capital mistake to theorise before one has data. Think of the CPI. What do you deduce?”

Finger on the pulse

The Governor cleared his throat. “In March 2022, headline CPI moved from 6.1 per cent to 7 per cent and the food inflation increased by 154 bps to 7.5 per cent.” Holmes narrowed his eyes, his face suddenly hawk-like. “And who has the highest weight within the food group? You need to have your finger on the pulse of that dataset! Elementary, my dear Governor”. “Pulse!” said Watson suddenly. “Check whether pulse prices have risen by 10 bps!”

Just then, a little man with an egg-shaped head and an enormous moustache stepped into the room rather pompously. “My name is Hercule Poirot” “Ah, M. Poirot! We have been searching for the culprit. Dr. Watson was suggesting we track pulse prices.”

Poirot said to Watson rather kindly, “The mind is confused? Take time, mon ami. You are agitated — it is but natural. Presently, when we are calmer, we will arrange the facts, neatly, each in his proper place. And then you will see. You need to have your finger not on the pulse but on the cereal. It is natural to think of tur, chana and moong, the old-time inflation-mongers. But the tur, he is innocent. And chana, he is still waiting in his field. It is that wheat who is causing this inflation issue here! Indian wheat, he is getting sun-burnt due to the harsh summer and then is also getting exported off, causing a pressure point in the country.”

Watson sputtered, “Wheat? M. Poirot, we are sitting in India, the quintessential roti capital. Wheat has been such a friend. How can he, errr, it cause inflation?” “Every criminal is probably somebody’s old friend”, observed Poirot philosophically. “You cannot mix up sentiment and reason.” The RBI Governor looked unhappy. “So should the government stop wheat exports?”

A fluffy old lady in the window stopped knitting. It was Miss Marple, looking a bit dithery and flustered as always. “It does seem to be the right thing to do, doesn’t it, to stop exports so that prices stabilise in the country. But then, you know, you land up killing off markets altogether as you are just responding to events all the time. Policy has to go beyond mere response, I feel. Maybe the government can focus on you know, increasing the yield of crops through tech interventions. I mean, there are these apps with scientific decision support systems. You must be thinking what a silly old woman I am..”

There was stunned silence. “On the contrary, dear madam! Intuitions cannot be ignored; they represent data processed too fast for the conscious mind to comprehend”, said Holmes. Poirot looked at her in quiet admiration. “Tres bien,” he said.

The writer is a brave economist trying to laugh against the odds

Published on May 11, 2022