Saturday, July 5, 2008


There is so much humdrum going on about the price rise lately, I thought I would try and understand wht it is all actually about.

So here are my findings:

1. The latest inflation rate has been calculated to be 11.63% , up by a whopping 3% in the past three to four months from 8%.
2. The inflation rate is always calculated in hindsight, that is for the trading and businesses that have taken place a few weeks ago. So this latest figure is for the week beginning June 21
3. The inflation rate is the percentage change in the prices of goods and services. Basically i think it kinda indicates how much more money we pay for goods/services than their actual cost.

Then, what is it that drives this increase in the cost??

Well, The cost goes up because the cost of the input raw material goes up, which in turn goes up because a lot of the raw materials for a wide range of industries are imported. The fuel cost and the strength of the foreign currency involved drives the price of the raw material.

So it all boils down to the cost of the fuel which drives the price rise.

As we all know, the price of crude oil in the markets have risen to $144 a barrel, whereas it was not so bad just a few weeks ago. The sharp rise in the oil prices has been not so much because of corresponding increase in demand

Nor is it because the oil producing nations are asking for more money for the oil

It is primarily due to something called futures trading taking place in an unregualted manner. Futures trading is done by special traders called speculators. Speculators only speculate, that is they dont actually buy anything.

Futures trading is about betting your money on a particular good and fixing its price in advance. If the actual price at the later date reduces, then the producer of the commodity is insulated from it, and he gets the price agreed upon earlier. And the vice versa.

Speculation over specualtion has resulted in the current state of the oil prices. I wonder when this will "deflate". Because as long as it doesnt, my dreams of buying a Honda city shall be put on hold.

So long.

P.s. this post may not really enlighten you about the trading market, still it will give you a "clear" picture of the great confusion the market actually is :D


  1. I was following it pretty closely till I came to the part about speculation about speculation. That's where I lost it.

    You want to buy a Honda City ah? Gather. Where do you plan to go to in it?

  2. The kind of shambles that the city's roads are in, I would only like to wipe it sparklingly clean.

  3. I basically feel that it is mainly because of the Countries with abundant occurrence of dark oil they actually know that the dawn is not going to become dusk for people without fuel so obviously shouldepend on them..So the so called deflation is never going to happen.

  4. India alone doesn't ve inflation .Even countries wit oil deposits ve this prob. Its comparitively less.if fuel price goes up here presently,it will affect the countries which import from us.. i duno whether i'm right thinking like this.Do tell me guys, how it exacly works.

  5. 1. yes, most countries who are not the OPEC are suffering from the inflation

    2. Few other countries (other than the OPEC) who have oil deposits are believed to be hoarding it

  6. Ahem ahem.. I'm not an economist. But as for the oil issue, I'd suggest bicycle as a solution. :)
    Oh and also the solar power can be utilized to an extent.

    By the way, Honda city? People have moved to the four wheeler era? Oh but, I'm still dreaming on buying a TVS XL super.. Duh..

  7. @visu

    yes they have. come on wake up buddy. :P

  8. fine you can get a honda city. but think of the running cost with petrol dearer by $143 and all. with the slow down in economy world over, food crisis snowballing, demand outshines supply, again we r going 2 the old days. the solution shall be tighten our belts on the domestic front, which in turn will reflect in the country's front and in turn the world's front in curtailing unnecessary expenditure, more focus on agriculture and industrial development.
    let me tell u that inflation is applicable in OPEC also. If u c the mid-east, Oman and Qatar has the highest level of inflation 11% in the year 2007 itself.