The effects of
inflation are felt by everyone; but, what exactly is inflation? To the common man, inflation means a rise
in the prices of goods (such as foodstuffs) that he buys.
Inflation, according to the author, is caused by differences in supply and demand. The author says that if supply is higher than demand, the prices will remain low.
The government uses the CPI (Consumer Price Index) - which shows the impact of inflation upon the customer - to track the rise in prices.
The recent rise in prices was caused by a sharp rise in the prices of petrol and petroleum products. This, in turn, lead to a rise in food prices that affect the common man:
- Due to (political) unrest in Middle Eastern nations, where many of the major petroleum producers are located.
- Oil prices also rose due to speculations (by investors) in the oil markets.
- The rise in diesel prices means that the cost of transporting food to the markets becomes higher as well.
- Shifting from food grains to producing bio-fuels also has an impact.
- Import restrictions have been lifted, along with the process of liberalisation. A development in the Middle East has an impact upon Indonesia!
The only trouble is that when fuel prices fall, food prices do not seem to be affected! The economic supply chains of all the nations have become interlinked; it is difficult to predict the exact impact of one development upon another...