The Hindu Business Line : Is globalisation influencing inflation in US

Recently, the US Federal Reserve Board Chairman, Mr Ben Bernanke, said that globalisation has influenced inflation in the US. Globalisation has its influence on many things, and price cannot be an exemption. But it is for the country concerned to take appropriate action to keep its price line or inflation under control.

In the Indian context, too, there are many distortions. For example, the 9 per cent growth may not represent or reflect the true living conditions of a majority of the people, as most of them depend on agriculture whose growth rate is only a mere 2.5 per cent.

Similarly, only the prices of certain commodities, such as wheat and pulses, influence the inflation rate.

The Government failed to take appropriate action on the farm front in spite of warning signals. But now it is taking several short-term and long-term measures to combat the price rise.

And with the RBI, too, contributing to this effort, we can expect results shortly.

A. Jacob Sahayam, Thiruvananthapuram

Globalisation can, in fact, lead to both inflation as well as deflation. It has two main direct effects on inflation, which partly counterbalance each other.

On the one hand, some resources are becoming less scarce on a global scale, notably investment opportunities and skilled labour.

On the other hand, other resources have become scarcer relative to world demand: these are raw materials and basic commodities, most importantly oil and other sources of energy.

With trade being less controlled than what it was earlier, the goods and supplies will reach those places where a higher price can be fetched.

Unfortunately, in the Indian context, the Government looks a bit confused and keeps on changing its directives and policies, to the detriment of everyone.

However, volatility will be more pronounced than in the past and the Government and central bank should be on their guard continuously.

Krithivasan, e-mail

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