Hallelujah..... its recession

I have never seen a recession in my short life span and I don't know how to be a part of it. The other day I was purchasing bunch of grapes from a roadside vendor when its price struck me. Guess what ... the price is same as it was 10 months ago or perhaps a year ago. Now with the hoo-hah about the recession in the backdrop of our lives and the much caused pain caused by it, I was left wondering if I am being taken for a ride for my princely appetite. Well if there is a so called liquidity crunch and a demand destruction present in the economy, then why isn't the shrewd vendor giving me any concessions ?? For I must be among the few number of customers paying a visit to his base. Why is he so inflexible in his pricing ? Why isn't the ugly head of recession showing up when he arrogantly snubs down my attempt for a haggle? It seems his ego goes hand in hand with the price.

Well let me break down my experience in terms of a paradoxical market phenomenon that is building up in the aftermath of the worst economic crisis ever.

Consider the situation a year ago when the economy was hale and hearty and the prices were reaching the skies. The demand outran the supply by a huge amount and the prices followed a non linear path. Retailers, vendors, autowallahs, even the local nescafe had upped the prices forseeing an increased demand. In some cases the hike was an unjustified 50% (Icetea costing Rs 15 from a previous Rs 10). The double digit inflation seemed to justify this and with record levels of production and spending the hike was all very well cushioned. All the figures, IIP, FDI ... etc were at an unprecedented green levels. Even the stock indices zoomed to staggering levels. Everyone hoped to cash on this and made astonishing irrational decisions of raising prices, adding human resources, expanding and piling up debt that was way beyond their limits. But then the catastrophe struck that only their grandfathers would know about.

As the story goes, money dried up in the market and the blood bath ensued. However, the prices remained inelastic. The reality prices did not scuttle nor did the price of icetea and not even the grapes. So what happens when the demand cannot keep up with the price ?
Simple .... blood gets spilled. Look at the reality stocks off late, they were trading at a lifetime high (DLF ~ Rs 1200) then and now they are flooring at record lows (DLF ~ Rs 150).
And what about the domestic airlines that refused to pass reduction in surcharges to the customers, they mounted enormous losses. However, my friend at the fruit stall does not know much about this and continues pricing at levels that would no longer be sane. Yes, this is the tendency of people, the inertia of a system that remains inelastic to changes. Owners and residents would never sell a flat at 15 Lacs that was priced at 35 Lacs the very last year. The nescafe would never revert back to the previous rates.

So here lies the greatest catch. It would be the burst of people's ego before any other economic bubble bursts. The revenues will crash and so will the brand. Demand will be lost and profits would be thrashed. Vendors and retailers would be slapped and kicked to respect the market and made to realize that it is the consumer like me who rules the roost in a capitalistic society.

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