For the past few weeks I wanted to write about my views about inflation, I am no economic professor. But I just wanted my views about the whole situation and hear what people say about it. But due to work I was not able to do a complete research on the root cause leading to inflation or rather what we are today.
Yesterday, a friend was between jobs and I asked her views about Inflation and the root cause. It's just that I like to have other peoples views on issues realted to my thoughts, it gives a different perspective.
Her views
Dynamics of Inflation
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What really is Inflation? I am sure a layman in this century can answer this Q too. It’s not an unfamiliar /unheard term since its strongly connected to our daily lives; in fact people in every strata of the society must and should known what it means, for the simple reason that its
invariably related to our purchasing power!
Well Wikipedia defines it as "a rise in the general level of prices of goods and services in an economy over a period of time". It can also be described as a decline in the real value of money (a loss of purchasing power). But the mechanics of inflation have baffled even the most astute of financial experts. Needless to say the reasons for inflation are complicated!
I believe that in the recent times, the major causes for the rise in inflation have been extreme imbalance in global economy, currency crises; US subprime mortgage crisis, soaring oil prices and fluctuation in prices of goods and services. In fact all these factors are in some way interconnected to each other, resulting in one leading to the other.
Controlling inflation has become a priority for the Indian government now since earlier inflation (i.e in the nineties) was caused by domestic factors, but things have changed significantly. If you look at the workings of the US economy, its evident that the US economy consumes massively leading to trade deficits. The country is intensive in imports but exports little. This evidently affects developing economies like India.
The other reason for a sharp rise in inflation is of course the impact of high oil prices on food products, since it involves agricultural as well as transport costs. High costs of energy directly translate into higher costs of cultivation, and therefore higher prices of output. And this results in inflation.
And of course how can you sideline the appreciating value of rupee against the US dollar. The Rupee in the recent past was growing stronger against the dollar; this was good news for the importers since they ended up shelling out less units of the local currency for each unit of dollar to pay for their imports. In contrast the exporters were at a losing side as they got less units of local currency in exchange for their earnings. A strong rupee translates into Indian goods and services becoming costlier (and hence less competitive) in the international market. On the other hand, the effect of a weak rupee (against the dollar) is exactly the opposite. Interesting huh!
The RBI has come up with a number of methods to tackle the problem of inflation; it has to certain succeeded in doing so. But I bet there is no panacea to this problem since situations arise and things change so much with time. And every problem brings along with it newer problems that need to be handled differently!
As a management student i can only share my views on this coz am not expert at this. So that is as far as my knowledge takes me :)
Impressive...
My views
Economic Crunch
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Inflation - A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. Courtesy:Dictionary.com
Root cause for Inflation?
There are 1000 answers and more to this question. First of all I am not a management student; I am just an ordinary man. These are just my views and there is no one who can sue me for saying what I need to say? :D
To me it felt in the beginning that Inflation is due to US pumping in more money into Pak. In the sense US didn’t look at their own countries imports and exports and lost the $ value to keep up their pride in today’s world. After which I felt it must be the result of the Iraq War, then I assumed it was due to the Asian’s economy which was building strong against the $.
In reality after going through a lot of research I conclude upon my views as to what was the root cause? Fact that Inflation started with the Oil supplying countries. The fact is Oil countries are getting equipped with all the things that they would need once the oil is exhausted. As you are aware, these countries need a lot of energy resource, i.e. electricity, raw material etc. When they need these, who do they approach? They approach the US. Now let’s look at the broaded perspective, where does US get their oil pumped from? The same countries which need to build tallest skyscrapers to the movie style living. In turn the oil countries didn’t get enough $ for their needs and the fuel prices shot up.
With fuel prices shooting to an all time high, the worst impact was countries where huge population uses transportation, now the transportation charges increased and that would first affect the cost of vegetables & commodities coming from the farmers and the middle class section to the processing units to the local retailer. Where will the cost of this transport be recovered? The buyer, who else? The price rise of virtually all groceries will increase. This will mean that for a common working man like me, he will have to spend more on his daily needs, and thus he will be able to save less in the process.
In turn to compensate for the rise in food prices, the self employed people, like doctors, lawyers and the business class will start charging more at their profession. Once your general transportation, medical, food expenses increase, our savings would further decrease. Then we will demand more from your employer. The employer thus then spends more on employees, hence increasing the expenditure of the company. With this our investors, who are not happy with increase in the expenditure. In turn reduces the company’s stock price. To compensate, the company charges more from its clients. This causes a ripple effect. Thus the inflation chain cycle has begun.
Looking at the chain of event from above para, I feel the rising international oil price has been the root cause of Inflation. In the mean time, what does the country do about Inflation? Increase the Taxes and penalize the common man. Today the cost of living is so much, that it wouldn't be surprising if fuel prices shoot up from Rs 55/liter petrol to Rs. 250/Liter petrol in 5 years. Who is to blame for this? It’s us who have nominated the Dirty Politicians to their post. Now the ground reality, in a country where people with below $1.25 per day revenue is so high, the richer will get rich by hiking the price the ones who get impacted would be the middle classes and the poorer who would be still trying to make it rich. Which doesn’t happen? As anyone thought what would happen to the world if it goes with the kind of speed its heading today? I know not, but having knowledge of these issues does make once life less complicate and ground reality of the issues.
Today's question,
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