Economy
Imported
inflation, end of easy monetary policy and supply chain disruption has the
potential of pushing an economy into stagflation.
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Stagflation is said to happen once an economy faces stagnant
growth also as persistently high inflation.
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In other words, the
worst of both worlds.
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That’s because with
stalled economic growth, unemployment tends to rise and existing incomes do not
rise fast enough and yet, people have to contend with rising inflation.
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So people realize themselves pressurised from both sides as
their purchasing power is reduced.
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The foremost famous case of stagflation
happened in the early and mid-1970s when OPEC- (The Organization of Petroleum
exporting Countries), that works like a decided, determined to cut supply and
sent oil prices soaring across the world A 10 per cent increase in crude oil
prices raises wholesale inflation by 0.9 per cent and retail inflation by 0.5
per cent.
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Higher prices will
reduce this demand.
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Fewer product and services being demanded will then
disincentivise businesses from investment in new capacities, which, in turn,
will exacerbate the unemployment crisis and cause even lower incomes.Thus
leading to Stagflation.
Can the latest spike in
oil prices send India into stagflation?
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There are various
indicators that suggests India is not in stagflation Rising consumption demand
Rising private investment to around 27.9% highest in last one decade Risin
government expenditure especially the
capex Rise in trade post covid recovery Rise in unicorns startups Recovery in
producing post covid possibilities of rise in export post Ukraine-Russia trade
blockage but, it cannot be
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The average prices will
perhaps hover at levels above $100 and as India imports more than 84% of its
total oil demand it will lead to imported inflation.
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Since oil is such a basic cost in our economy, this spike can
likely make sure that Indians suffer from high inflation.
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A 10 % increase in crude oil costs raises
wholesale inflation by 0.9 per cent and retail inflation by 0.5 per cent.
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India is facing the foremost acute
unemployment crisis its seen in the past 5 decades..
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India will see lower
than previously forecast economic growth.
It will expand 8.9%
in the year ending March, according to data released Monday by the Statistics
Ministry.
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