Inflation and ego

What better Karma for a man than to get a wife who can make a hot, delicious breakfast before the he sets out to work (or vice versa!). I am one such lucky soul to be provided with hot breakfast almost every day.

On the rare days when no breakfast is prepared at home I am forced to eat outside. As the building where my office is located houses a well-known restaurant, I usually end up eating there if there is no breakfast at home.

Around the beginning of September a few colleagues and I were drinking coffee after a breakfast of Idli. While having coffee we noticed that the menu board was replaced with new price points. We had paid Rs 45 for the plate of idli and by the time we had coffee it became Rs 50. Being an analyst we brushed it aside saying to ourselves that these are inflationary times. The weekend price for a plate of idli was Rs 55. At the beginning of the year the price per plate of idli was Rs 40.

Inflation, be it at price level or at the ego level, is dangerous unless it is deflated and deflation never happens “evenly”. Deflation can be very volatile causing much collateral damage. Inflation and Inflated ego are the topics in hand.

We imagined the reason for this 25% price increase from the beginning of the year to be any of the following;

✔ The greed of the restaurant owner to earn super normal profits as it had less competition in the vicinity and was a near monopoly in that category of restaurants in that area.

✔ An increase in the price of vegetables. However being experienced in buying vegetables I was not convinced with this reasoning as recent prices increases in vegetables were a lot more benign. Incidentally, a recent article in Mint titled "Food inflation that makes you cry" had pointed out that the prices of regular food items have shot up quite significantly in the last decade.

However, much of this increase must have already been passed on. Hence the recent increase in the restaurant prices appears to have been caused by other reasons than the increase in the price of raw materials.

✔ An increase in wages; however the waiters did not look too happy which suggested that their wages were either static and had not really gone up.

✔ An increase in property prices and rentals – while commercial property prices in Nariman point have not really gone up, it is possible that prime retail property rentals could have moved up.

✔ One colleague suggested that the increase might be for enabling the owner to make contributions to political parties as state elections were nearby. His theory was that large corporates fund national elections whereas corporates and scores of retail units fund state elections. The colleague also shared the view that all street vendors had also increased the prices and the increase was to support elections and in some sense it was their cost of doing business.

Price increase was a reality, but the reasons behind the increase could be any of the above.

The rate of increase in prices if left uncontrolled can have dangerous impact; the least of which being the distortion of wealth and what is generally known as a situation where the rich become richer and the poor become poorer. This distortion is a serious issue and could have a serious impact in future on politics and social interaction between different parts of the society. I cringe every time when I look at my household help or my driver or the office boy in the office. How do they manage if prices move up so sharply? Incidentally even as I was writing this article I noticed that between a Sunday and a Thursday the price of Ragi Chips at a modern retail store had moved up from Rs 50 per packet to Rs 60 per packet i.e. a 20% increase in a matter of few days.

Hopefully all the measures taken by the Reserve bank of India should help in deflating this inflationary bubble. More stringent measures might be needed. Remember that the measures to control inflation is like removing the air from an inflated balloon and just as balloons do not deflate in an orderly fashion the inflated economy runs the risk of an uneven deflation and its destabilising effect

Now just as a runaway inflation is harmful, an inflated ego is equally harmful and can have unpredictable consequences.

In the fund management industry, star fund managers with inflated ego’s are a poison for the long term sustainability of the business. Even in the movie industry a Star cannot afford to have an inflated ego. A brilliant movie star having an inflated ego and a larger than life attitude could be difficult to work with, and such a star has never enjoyed the benefits of stardom for a long time. This is also applicable in the field of sports. Inflated egos deflate, and deflate badly.

In the money management business, depending on a star fund manager is dangerous. A star fund manager may be brilliant but his interest begins and ends with himself. He has little interest in passing his knowledge or in building a team that will outlast him.

Recently in the fund management space in the international arena, Bill Gross, who was running the world’s largest debt fund left the company PIMCO which he helped create, to join a competitor. There are doubts if he really helped in creating teams or processes at PIMCO to sustain long after he was gone. This is a serious let-down to the investors who invested in his firm assuming that long after the aged man Bill Gross retires, the firm would have other talented fund managers who would manage the assets very competently. Bill Gross’s departure could also be a let-down for the shareholders of the firm who had entrusted in him the responsibility of building a firm for the long run.

Although inflation may not be under our control, we can face it with some planning. But inflated ego is certainly under our control.

An organisation built around an inflated ego may be weak at its roots. At QUANTUM we launch products which will help investors manage the inflationary impact on their wealth and we are building a company that is not based on pampering someone’s inflated ego.

Above article is authored by Quantum.

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