OTHER MEASURES OF INFLATION CONTROL

Monetary and fiscal measures generally fail to control cost push inflation. That is why, Various non – monetary measures can be adopted to supplement monetary and fiscal measures to fight inflation.

(a) Price Control and Rationing

It is a popular direct method to control the price rise. Price control implies the establishment of legal upper limits beyond which the prices of particular goods are not allowed to rise. The function of rationing, on the other hand, is to distribute the goods in short supply in an equitable manner among the people to create conditions conducive to price stability. Price control and rationing generally move together. It is, however, difficult to administer such anti-inflationary devices. These controls may lead to black marketing in the goods put under control due to inefficient and corruptible administration. Further, the use of rationing is limited by the practical difficulty of covering sufficient number of essential consumer goods under the rationing system.These measures also limit the freedom and welfare of the consumers. Even Keynes did not favour rationing for it “involves a great deal of waste, both of resources and of employment”.

Price control is probably the most effective method available during war, when other methods to check inflation become almost useless. Many countries adopted price control during the second World War, and continued it during the post war period. During this war period, many necessities went beyond the reach of weaker sections of the economy as a consequence of severe inflation. Merchants and profiteers boarded these goods due to expectations of further rise in their prices. Only price control could bring the relief to the victims of inflation.

(b) Wage Policy

Higher wages lead to higher costs and ultimately to higher prices, resulting in cost push inflation. It is advised that wages, salaries as well as profit margins, etc. should be controlled through a system of income freeze. The wage freeze is favoured by businessmen. They do not advocate any measure which may affect their profits.

Wage freeze policy of the government is strongly resented by the working class, particularly where the trade unions are strong and well organized. The success of the wage policy depends upon the cooperation of the workers, employers and the government. The trade unions’ demands for higher wages should be productivity linked. In this way, higher wages would not raise the unit cost and the unit price due to increase in the production of goods in the economy. Further, employers should make payments of justified increases in the wage out of their profit margins to freeze price also. Finally, the government should refrain from raising prices by imposing new taxes or increased rates of taxes. The policy of rationalization of industries raises productivity and production through the use of brain, brawn and bullion.

(C) Output Adjustment

It is the most powerful way of checking cost-push. inflation. Output may be increased by shifting factors of production from the production of less inflation- sensitive goods to the production of relatively more inflation sensitive goods like food, clothing and other essential goods. For this purpose, system of priorities, regulated allocation and subsidies may he followed as practiced by some countries during Second World War and the post – war period thereafter. Furthermore, domestic shortage of goods may be fulfilled through imports of goods or law materials for the same either on credit or in exchange for exports of non- essential luxury goods. This will require reduction in import duties and increase in export duties.