Today sharing with you an interesting story which is even puzzling the economists. Oil prices are rising sharply. Yet the year on inflation of India was just 3.08% (latest by 20 august available data). However in the same period last year it was 6.5%. How it is possible. In 1973-74, 1979-80 and 190-91 we have seen sharp increase in inflation in India and abroad with the increase in OIL prices.

Why not today. In US too, the same condition is there. All commodities have shot up in prices in last two years. Yet increase in raw material prices has not produced a big global price burst. Why, the answer is simple globalization increased the competition and innovation is putting prices downward. That's why global manufacture is shifting to India and China. Where no innovation is there in previous period and competition is less.

Therefore Oil prices are able earlier to increase the inflation. Say for example the price of computer costing Rs 1 lakhs in 1980 is crashed to Rs 10000 today. In addition the prices of telephone call, putting a camera in mobile, DVD player and Owen are decreasing. The abolition textile quotas this year will further give 5%-10% price cut. Prices of aviation fuel have gone four times, where as prices of new comer airlines have dropped drastically. We have seen decrease in interest rates.

One more thing is shift in global GDP from manufacturing to services. The shares of services have increased from 57% in 1990 to 64% in 2000 and 68% today. In service dominated country like America, the main contributor for inflation is salary and not raw material prices. Which is compensated mostly by outcursing these jobs? Therefore world can sustain the increasing Oil prices without put pressure on inflation. In nut shell the globalization is helping us to sustain pressure of increasing oil prices.

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