24 Aug 2009

Sample Essay: Growth and the Inflation

It is no doubt that both of these processes pull each other and business is the fluctuating transition between the two. Combating inflation would be counterproductive as it will bring down the growth. Soaring prices of commodities globally, will only result degrading the monetary value of a country. But this cannot be related with just particular country, as this process is globally, that means growth is taking over inflation. The best example is people now enjoy privileges of hiked incomes and incentives, will only push the prices high. Value of anything states that it could not be of any worth, if everyone possesses it. On contrary, prices are rising due to shortage of services, lack of available raw material and expensive processing charges.

For example: The crude prices are shooting exorbitantly, is the recent global turmoil. Every possible effort is being done to keep the Oil prices under control, but reason is very clear. Costly drilling rigs, shortages of operating tools, unavailability of required service, etc have pushed up the prices. Moreover, persons working there, to explore for oil are facing hardships, risk to lives and staying away from their families, will not only lured by fixed salary, but in addition to that incentives are paid from time to time to achieve the estimated target within time limit. Thus until this stage, when the crude is about to sold in the market, all the expenditure will become burden on consumer. This way the prices kept increasing for public, day by day.

Contrary to this, there was a period of 3 years in 1990’s when oil business was on its low and struggled to mark their presence in market. The reason was, crude prices went down tremendously this led all operators and Oil companies not to take out oil as the rates in which they have to market the Oil is lower than their expenditure, that would have made business losses, result was they avoided exploring oil. The outcome of this is that inflation does not mean bad for growth, but it fluctuates under the effect of demand and supply statistics of the market.

Now-a-days in US, there is spurt in demand for meat, eggs, milk that is basic commodities. It can be straight away be termed as Inflation, but as this is a global phenomena, this is that we all are heading towards growth. For countries, that are incapable to match the pace of rapidly developing nations in terms of economy, will definitely face price rise and will be the sole effect of Inflation. Supply demand mismatch arise due to structural shift in demand that is induced by fast growing sectors.

Recent market scenario is analyzed as a result of inflation, on other side that whether it may or may not be, national governments are taking concrete steps to control price rise by making it subsidized, putting ban on exports and eliminating duties on basic products.

After all there is a strong cooperation between World Bank, IMF and UN Food & Agricultural Organization, even that has failed to make any positive efforts and that threatens the macroeconomic stability. Many big companies in US are outsourcing their manpower, in order to cut cost to gain net profit. It cannot be just of inflation, but a reason of cheap resources and opportunities outside US.

Thus one can say that growth is answer to the current bout of high inflation. Inflation is not neutral and in no case if favors rapid economic growth. Also higher inflation never leads to higher income levels in medium and long runs. Inflation reduces the business investments and also reduces productivity. Control on inflation regularly will pay off sooner or latter, resulting in higher per-capita income and thereby pushing national on economic terms.

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