A2 India – Inflation Doesn’t Escalate
India empirically manages inflation – and inflation only escalates in time of war
Neerjan Rajadhyaksha, economist and columnist, 6-10-08
http://www.livemint.com/2008/06/10221118/Inflation-a-short-history.html, Inflation: A short history
These episodes of runaway inflation are linked to political dislocations and war. So peace, political stability and credible governments do matter when it comes to keeping a lid on prices. But even if the extreme cases of inflation that have their roots in war are kept aside, India has a middling record in fighting the genie of rising prices. It has a far better long-term record than most other regional peers. India has spent about one out of every eight years with inflation about 20%. The likes of China, Indonesia, Korea, Myanmar and even Japan have done worse. But Asian economies such as Hong Kong, Malaysia and Singapore spent far less time struggling with 20%-plus inflation. The ability to keep inflation under some sort of control is one part of India’s good economic record. The other part is the ability to stay clear of foreign defaults though, lest we forget, India has had three trysts with semi-defaults since it became an independent country. The government rescheduled foreign debt in 1958, 1969 and 1972. The data used here is taken from a recent paper, by economists Carmen M. Reinhart and Kenneth Rogoff, on financial crises over the past eight centuries. They show that financial crises are a given in the world economy since the Middle Ages. “Serial default is a universal rite of passage through history for nearly all countries as they pass through the emerging market state of development,” they write. And add: “Episodes of high inflation and currency debasement are just as much a universal rite of passage as serial default.”
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European stocks spurred by drop in oil prices
Herbert Lash, Staff Writer, Thomas Reuters, 7/16/08, GLOBAL MARKETS-Fall in oil price spurs US, Europe stocks rally, http://www.reuters.com/article/bondsNews/idUSN1643518120080716?pageNumber=2&virtualBrandChannel=0&sp=true
U.S. and European stocks rose on Wednesday after oil prices fell sharply on news of an unexpected leap in U.S. crude supplies last week and a big U.S. bank posted surprisingly strong results, easing investor fears about the battered financial sector.
Spot gold prices tumbled about 2 percent as crude oil slid and the dollar extended gains after Federal Reserve Chairman Ben Bernanke said that under certain conditions currency intervention may be warranted.
Shares in the beaten-down financial sector surged. The S&P financial index rose 6.3 percent, while the KBW Banks index .BKX surged 9.4 percent.
Not all the news was positive. Data showed U.S. consumer price inflation accelerated to an annual rate of 5 percent in June -- well above economists' forecasts -- and U.S. government debt prices fell sharply.
U.S. crude oil futures fell more than 4 percent after a U.S. government agency reported a surprise uptick in import levels, causing crude prices to chalk up the biggest two-day loss in percentage terms since January 2007.
While the two-day drop in the price of oil of almost $15 only brought crude to a three-week low, the fall was enough to help Wall Street rally more than 1 percent. Equity markets had slipped entirely into a bear market earlier this week.
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Oil prices drop in record numbers remain vulnerable to shocks and consumption resumption
Gregory Meyer, Dow Jones Newswires, The Autralian Business, 7/19/08, Oil prices slide for a fourth straight session, http://www.theaustralian.news.com.au/story/0,25197,24043762-20142,00.html
According to statistics released on Wednesday, US oil demand in recent weeks was down 2 per cent from the same time last year as gasoline and other fuel prices caused drivers to think twice about trips.
The US will send a senior envoy to Geneva this weekend to participate in nuclear talks with Iran's top negotiator, the closest contact between the two countries since 1979. After heated rhetoric and Iranian missile tests helped drive crude to records last week, a softer tone helped take prices lower.
"The importance of a US State Department representative at these talks shouldn't be underestimated since diplomatic progress could prove worthy of further evaporation of geopolitical risk premium related to Iran," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy trading advisory firm.
Still, little cushion exists between supply and demand and world oil stockpiles are below average. In past months, pullbacks have served as chances for buyers to flood back in.
"Despite the recent rebound, crude oil inventories remain extremely low and fundamentals remain tight, underscoring that the oil system still remains vulnerable to supply and demand shocks," Goldman Sachs commodity analysts said in a note to clients. The bank sees crude selling for $US149 a barrel by year-end, as "the risk to prices remains skewed to the upside
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Markets worldwide are boosted with falling oil prices
Press Association, 7/17/08, Markets boosted by oil price falls, Google News, http://ukpress.google.com/article/ALeqM5iTX_go1LfaJ8gEpA5P1dm0D3oZsA
A cooling in oil prices helped to boost flagging stock markets, with London's FTSE 100 Index ahead more than 1%.
Light, sweet crude on the New York Mercantile Exchange - the benchmark oil price - was trading at around 134 US dollars a barrel, well down from the 147 dollar record recorded last week.
That spike shook investors around the world, which, combined with further economic gloom such as soaring inflation, sparked several days of hefty losses for London's blue-chip FTSE 100 Index.
But oil prices have dropped over the past two days amid expectations of slower demand in the US. The Energy Information Administration said on Wednesday that US crude supplies rose by three million barrels last week, compared with the three million barrel reduction analysts had expected.
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Oil drop send European share higher
Herbert Lash, Staff Writer, Thomas Reuters, 7/16/08, GLOBAL MARKETS-Fall in oil price spurs US, Europe stocks rally, http://www.reuters.com/article/bondsNews/idUSN1643518120080716?pageNumber=2&virtualBrandChannel=0&sp=true
European shares turned positive after crude fell and in response to Bernanke's comments about currency intervention. The FTS Eurofirst 300 index of top European shares closed up 0.53 percent to 1,115.97 points.
Automotive stocks soared as the dollar strengthened against the euro, with BMW (BMWG.DE: Quote, Profile, Research, Stock Buzz) rising 2 percent. Fiat (FIA.MI: Quote, Profile, Research, Stock Buzz) rose 6 percent and Peugeot (PEUP.PA: Quote, Profile, Research, Stock Buzz) added 4.6 percent.
Airline shares rose on the drop in crude. Air France-KLM (AIRF.PA: Quote, Profile, Research, Stock Buzz) rallied 7.8 percent, Lufthansa (LHAG.DE: Quote, Profile, Research, Stock Buzz) gained 4.8 percent and British Airways (BAY.L: Quote, Profile, Research, Stock Buzz) rose 6.9 percent.
Oil Prices are getting lower with current supply counts and dwindling demand
VOA News, 7/16/08, ‘Oil Prices Drop More Than $6’, http://www.voanews.com/english/2008-07-16-voa31.cfm
Oil prices have plummeted for a second day in a row, following a report on U.S. oil inventories. The price of crude oil in New York dropped more than six dollars in trading Wednesday, falling below $133 a barrel, before easing upward. The movement followed a U.S. Energy Department report saying the country's supplies of crude oil rose by almost three million barrels last week. Oil prices fell sharply Tuesday on concerns that a slowing U.S. economy will decrease demand for oil.
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Oil Price drop after inventory spikes are lowering demand
Chris Flood, Writer, The Financial Times Limited 2008, 7/17/08, http://www.ft.com/cms/s/0/62f22a28-5399-11dd-8dd2-000077b07658.html
Oil prices fell sharply yesterday, extending their decline for a second session, after the latest US inventories data brought more evidence that demand was weakening in the world's largest economy. Nymex August West Texas Intermediate fell $3.76 to $134.98 a barrel after touching a session low of $132.00. WTI has declined by $12.93 or 8.8 per cent since reaching an all-time high of $147.27 last week.
ICE August Brent, expiring at the close yesterday, slipped $2.56 to $136.19 a barrel, down $12.25 or 8.3 per cent since reaching a record $147.50 on Friday. The September Brent contract, which becomes the benchmark from today, lost $4.50 at $135.36. US weekly inventories data showed larger-than-expected increases in stocks of crude, petrol and distillates, ensuring heavy selling pressure on oil prices. US crude stocks rose 3m barrels last week, confounding the consensus forecast from a poll of analysts by Reuters for a 2.1m barrel decline.
Oil Prices have been in a downward spiral
Jayant Manglik, Head of Commodities, Religare Commodities, 7/20/08, 'Oil is on the boil', SIFY Home Finance, http://sify.com/finance/equity/fullstory.php?id=14719624,
Therefore, high prices are not only the problem but also the solution. The increase in crude prices has led to more money being pumped into oil exploration, new technologies to increase production even from marginal fields and new investment into refineries, besides political pressure on oil exporting nations to produce more. High crude prices at a point become counter-productive if they lead to de-growth in user countries. So there will either be additional supply or demand will be adjusted to bring prices to acceptable levels.
OPEC-inspired price increases ended when they realised that high crude prices in the late nineties had wounded the East Asian countries, which were showing rapid growth till then, and OPEC was forced to increase production due to falling demand set about by high prices. This move, in fact, sent prices into a downward spiral (low demand and low prices). It is entirely possible that the petering out of world GDP growth in recent months is partly on account of high energy prices.
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