Hike in Food and Energy prices and the rise of the Price Index

Inflation has hit new highs with the increase in food and energy prices across the world. Indeed, it is a very disturbing scenario, since most of the world economy is already reeling under the effects of the economic recession which has shattered worldwide economies. With the start of the economic depression, the world’s economies have been badly hit, with the common man finding it very difficult to survive.

Many people the world over are jobless due to the recession, and added to this, the rising price index will only increase their worries for some more years to come. It is always seen that the price index always fluctuates with the change in the prices of food and energy, among other factors. This is because food and energy is closely related to one another and when worldwide fuel prices increase, naturally, there is a gain in momentum for food prices to increase. This is due to the fact that as fuel prices rise, then the transportation costs also increases simultaneously. Likewise, fuel is also required for the manufacture of the fertilizers that are being used for food crops.  Petroleum is a major component for most of the fertilizers that are being produced worldwide.

Thus the fuel price hike will result in an increase in fertilizer prices. When it comes to the agriculture machineries like generators, tractors, tillers and many others, it is the fossil fuels that are being used to power them. Hence, the cost of agriculture increases and with this the price of food products produced by farmers also increases. Thus it is this price increase that results in the overall increase of food prices across the globe. The increase of food as well as fuel prices will be ultimately reflected in the rise in the overall price index of the various countries.

This results in the increase of inflation all across the world; and the common man has to very well face the brunt of these price increases. Thus, for any government, the rise of the price index followed by inflationary pressures is a real headache. Most of the governments try to rein in inflation, which grows because of external as well as internal disturbances of the economy, brought about by global happenings. Fighting inflation and bringing it down from a high level, and then controlling it, is indeed one of the toughest challenges for any government.

Hence any government of a country will try to rein in inflation by trying to increase agricultural output, and increase fuel output if they are fuel producing countries. This would be a very safe way to handle such an economic crisis and to bring down the rising price index. The government has to take very rapid steps and develop the best strategies to fight inflation and bring down fuel and food prices. By doing so, they would be ensuring the stability of their respective government and also render economic stability to their citizens.

- Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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