Inflation

All of us here at home listen frequently to the fact that all the essential commodities are become costlier by the day. Who is to blame? Was it in the hands of the government that the prices of commodities would have been low if they had taken adequate steps earlier on? Or is government helpless and inflation is just the result of economic recovery? These are the answers which come on to our minds many times and we are speechless. With regards to the calculation of inflation percentage as everyone knows that the Indian government way of calculating inflation is highly flawed and an eyewash with the prices of black and white TVs still being considered for the calculation of inflation. Still returning to the important question who is responsible. I have no idea as to who is the culprit. I only have information and facts which show things as to how time passed by since the summers of 2009. Summers of 2009: the prices of commodities were in control. Governments all over the world were pouring huge funds for helping the world economy. There was cheap credit in the market and people were hungry for returns on their investments. First I would like to make certain points clear as to the class of investors and the reason for investors investing/betting in various products. The basic fact is that a person who takes the least amount of risk is bound to invest in products which are 100% safe (government bonds/gold/commodities). Then as the risk appetite of the investor increases he starts investing in riskier products (equity markets). So in the 1st quarter of 2009 with cheap credit available, people started investing in bond markets as the government had huge bond issuances frequently to fund the financial stimulus plans governments had implemented. Along with this there was the option of buying gold as it is considered safer than government bonds. At this point an important event happened. With “some” logic in mind the Indian central bank started buying gold. The prices of gold reached to $1000 per ounce. The technical analysis was showing that gold is rallying and has come at an important level after which it has always reverted in the past. There was one important difference though. The indicators were showing this time that gold was not overbought this time as it had been in the past at the $1000 mark. And this is what happened next. It was around the time of diwali when gold crossed $1000 mark and sustained over there. The prices of gold never went below 1000 after that. So, who was this buyer who was buying so much of gold? It was our own Indian central bank. The reason for the central bank to go long in gold is still a matter of speculation and everywhere in the world people have different reasons. The most important reason which I can think of and which can easily be wrong is the credibility of USD as the reserve currency of the world. It can be said thus that the Indian government according to the rules is building up gold reserves so that when a new reserve currency is about to be formed or is spoken about then the bullion reserve of india will make INR more valuable. This can be a perfectly logical reason except of the fact that people here fail to take into mind that US government and the western nations have a very beautiful way of taking supremacy by changing the rules of the game and they can easily make some other thing as a benchmark to make a world reserve currency. It’s a very big gamble by the Indian government because if the gamble becomes successful then INR and india will become a global strongman. But due to this thing what happened is to be seen now. All the other commodities like oil, metals, agri products, food, fiber…. Everything started becoming more costly. (theres a general tendency of commodities to follow gold). So the situation now is that everything is extremely costly and whether it is right or wrong will only be known If the purchasing power of people increases proportionately. We can just wait to see what happens in the future. Lets see if things improve for the better of all of us