Friday, May 30, 2008

Inflation & Futures Trading in Commodities

We all know that cost of living in the recent days have gone up everywhere in Asian region. A cost for a tea on the road side shops will cost you 5 bucks, If a go into a decent restaurant for a group meals I needed to fill my wallet with bunch of high end denominations of rupees. Things weren’t same as before during my visit to India just a couple of weeks back. Few months back I was chatting with one of my friend about the raising cost of living in India recently, one of the fact that he was telling me was something about Online Futures trading in commodity that adds more fuel to it. He was saying unless government takes some serious measure on all such act we might end up hitting record high inflation ratio like that.

There were analysis done on the topic “Futures ban can bring down inflation in India”. Couple of nights back I also watched special coverage news on the TV about what really drives this Online Future Trading to aggravate inflation. He was telling that there more speculators on commodities that were not meant to be traded this way. Seems like the theory matches with what my friend explained to me during our conversation.

The theory is like when there is no real need for goods by the consumer they purchase it online and keep the stock with the dealer by making payment. Assume later there is a demand for the good that he holds stock (reason being shortage in supply at that point in time) and takes more money from that consumer then instructs the dealer to deliver to the address of the consumer who is actually in need of it. So, this speculation is done purely on the interest of making money by business minded people. As a result it affects us whole.

Probably our Indian government realized the fact that future trading ban on few commodities could help to slow down the skyrocketing inflation ratio. We shall keep our fingers crossed and see what happens in future on sky high inflation issue that trembles our whole nation.

Please feel free to share your views.


Anonymous said...

You are absolutely correct. Market speculation is the biggest contributor of the rising inflation.

Saravanan said...

Yes my friend. But see where it has got us to...