As the economies worldwide go into recession and start showing a negative growth rate, the demand for fossil fuel decreases. This has resulted in the fall in crude oil prices, which are almost 50% of the rates 6 months ago.
With the financial meltdown and exchange rates, the value of the dollar vis a vis most major currencies is decreasing. However, in countries where FIIs are major investors in the stock market, the dollar is appreciating , since money is withdrawn from the market.
In the last few weeks, prices of all essential commodities has increased by a significant amount. Though price increases normally do not affect my daily budget, this time the increase in prices is surprising. Usually only the price of fruits, vegetables and cereals increase when inflation levels increase, but this time the price of packaged food products like biscuits and noodles has also increased.
The decrease in agricultural output is one of the reasons prices have increased. The media in India focusses almost exclusively on metro cities and forgets that agriculture constitutes a major part of the country’s GDP. Successive governments only pay lip service to their concern about the welfare of the farmers, few have implemented any concrete measures to increase the per hectare crop output.
The second major reason for inflation is the increase in the oil prices. Though public transport systems exist in many parts of the world, owning a car has become a status symbol and people use a car for traveling even short distances. Since oil is a fossil fuel, its supply is limited and as the demand increases, the prices of crude oil have reached $135 / barrel in May 2008. Since oil is extensively used for transporting commodities and finished goods, this increase in cost has been passed on to the end user.
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