Impact of CRUDE OIL and inflation on market

What is inflation?
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan longterm. India has been plagued by the disease of inflation since 1950s but it has started showing its harmful symptoms and ill effects since 1991, post liberalisation. Causes of inflation Inflation is caused due to several economic factors: Increase in product and labour cost have direct impact on the price of final product, resulting in inflation. When countries borrow money they have to cope up with the interest burden, this interest burden causes inflation High taxes on consumer goods can also produce inflation. Demands pull inflation, where in the economy demands more goods and services than what is produced.

What is the relationship between oil prices and inflation?

The price of oil and inflation are often seen as being connected in a cause and effect relationship. As oil prices move up or down, inflation follows in the same direction. The reason why this happens is that oil is a major input in the economy - it is used in critical activities such as fueling transportation and heating homes - and if input costs rise, so should the cost of end products. For example, if the price of oil rises, then it will cost more to make plastic, and a plastics company will then pass on some or all of this cost to the consumer, which raises prices and thus inflation.

Impact of crude prices hike

INFLATION

Oil prices are determined by demand and supply factor in the open market, although it is regulated by the local government in some countires. Increase prices will fuel the inflation which in turn will increase the prices of all essential commodities

GDP growth rate Rise in the oil prices will negatively impact the growth of the economy by increasing burden on prices of other commodities, weaker consumption, decreasing companies profits and markets, which decreases the savings, investments and real income of the people, in turn slows down the growth.

Small and medium businesses

Mostly hit by the crude hike is the small and medium businesses(SMBs) Energy costs will zoom for thousand of SMBs which work under frequent power outages as they have to run and operate on a generator which operates on oil.

Conclusion
Though these factors seem to be small they have become a major concern for each and every nation. All global economies are under their impact. Now crude has replaced gold on commodities market. Earlier gold use to control the markets and today crude is doing so. Crude is deciding currencies exchange though it is not visible. Inflation on the other hand has become a dangerous pick pocket. Salaries of common man are not increasing at the pace at which prices are inflating.