Haunting Inflation

A few months ago, not many of the intellectual minds hailing from diverse sections of society had been as interested in the Sensex and its intricacies as they are now. The (obvious) reason is the persistent and drastic rise in the inflation rates with a peak record this year, touching an all time high. The recession, immediately followed by inflation in the global economy, resulted in higher rates for almost every sector.

The major indicator of the inflation rates has been the price of oil and its trading rate. Although a recent decline in the trading rate was reported – $137 on Wednesday, the challenge that every nation and its government faces is to maintain the costs of commodities at lower ends, thus ensuring affordability, and fighting the severe and direct effects of inflation.

Oil prices are at a historical high these days and food prices have also escalated to alarmingly high levels – thereby causing great concern. However, the global problem has not given way to a pain that is felt equally across different nations. In China, the official consumer price inflation is at 9% (up from the previous 3%). India also reported the highest rate in the past 13 years at 11.63%. The countries adversely affected by inflation are Venezuela and Argentina.

However, even in the face of such daunting adversities, the CIL has announced that it is not going to further increase the prices of coal fuel supply to power plants in India for the entire fiscal year 2008-09; much against the ever rising international prices and soaring operational costs involved in the manufacturing process. This has been considered as a step taken by the government to abstain from adding extra pressure on the already soaring prices.

To meet the aspired end, the CIL has set the rates for e-auction at much lower ends and is offering five times more coal than it ever has before. The lowest floor price has been settled at 5% as against the earlier 30% to keep the price line under check in the market. The global prices of coal have been moving higher. However, price of coal in real terms have been at an ultimate low (due to deflation in the economy) of 8%, even lower than the rates of the year 2000. Since, coal fuels the bulk of thermally generated power stations in the nation, a hike in its prices will result in further escalation in the cost of electricity. Those involved in the manufacturing process like steel and cement, all of which collectively will have an adverse effect on the economy of the nation.

The US Federal Reserve Chairman, Ben Bernanke predicts that the inflation will continue for a while and will not be a temporary phenomenon (as few investors have been speculating). The policies that are being followed in our nation seem to be an intelligent move to put up a strong fight to the evils of inflation. Also, good tidings beckon the government with the update that a good harvest this year may be a timely rescue from the soaring prices of food commodities. With a 20% rise in the production from the last year, the promising figures of 230.67 million in the fourth quarter reassure the government as well as the masses, who can heave a sigh of relief – being potentially rid of the continuous hike in prices.

On the whole, inflation in India is a part of the global phenomenon plaguing the entire world. A common solution to this problem could be a global inflation target, but that will take time. In the interim, the independent moves that have been taken by the government to combat the inflation are commendable (and setting aside the incubation period for the creation of the desired output) the global problem can be solved at the national level by such measures. The trauma has lasted long enough, and it is high time to focus on its remedy rather than being flustered by its impudence.

Arpita Chakraborty


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