Curtains have been drawn on 2010 and a new year begins for the stock markets today. The year gone by was a decent one for investors, regardless of where one was invested into. Stocks rose, industrial commodities were up, and gold and silver also surged. As we stand at the start of 2011, the Indian economy seems in a better place than where it was at the end of last year.
But under these calm waters lie one tension that is taking a bigger shape day after day. And if this gets out of control as it did in the middle of 2007, the Indian economy and consumers can be in a rough spot.
Global prices are already ruling at around US$ 90 per barrel. And there are more chances of the same rising from here, rather than falling. This is given that the US economy, which is the biggest guzzler of crude oil, has not seen an increase in demand as yet post the recession of last year. As such, when the demand from the US rises, and it will, global crude oil prices will rise.
The impact of rising oil prices could add to headache for Asian central bankers who are already fighting high inflation. Take the case of India. The RBI has already raised interest rates several times since the start of 2010. And this hasn't hurt the inflation demon a bit, given that the same remains above the RBI's comfort levels. Now, with oil companies asking for an upward revision in diesel prices, it would only add to the inflation fears.