Libyan crisis to hit domestic inflation

The uprisings in North African and West Asia could likely have an indirect impact on inflation in emerging economies, including in India. They are expected to reflect in the rise in non-food prices in the months to come, which would push up industrial raw material costs.

"Crude oil, bullion (gold & silver) and base metal have witnessed a significant rise in prices in the last six months," Naveen Mathur, associate director (commodities and currencies) of Angel Broking.

The prices of base metals, which include copper, aluminium, nickel, lead, zinc and tin, have risen by 15-49 per cent globally over the last six months, owing to growing demand in the wake of the developed economies returning to the growth path. Expected supply deficit in 2011 is keeping copper prices strong.

Auto majors are already feeling the pinch with steel prices firming up.

GLOBAL COMMODITY PRICES SURGE Crude oil prices jumped to a two-and-a-half-year peak on Monday as worries about supply disruption increased due to widening clashes in Libya, while world stocks fell on concerns that sustained high oil prices could hurt growth. Unrest in the oil-rich West Asia stoked demand for precious metals with gold - often sought in times of geopolitical tensions - rising close to a lifetime high of $1,443.30 an ounce, while silver surged to a 31-year peak. In Asia silver gained 2.1 per cent to trade at $36.3675 an ounce, the metal's fresh high since 1980. On Monday the price of silver rose by Rs 1,250 to Rs 54,450 per kg in India, while gold traded at Rs 21,420, up Rs 200 in India. The euro briefly reversed gains against the dollar and peripheral euro zone debt prices fell after Moody's cut its rating for Greece by three notches to B1 and kept it on review for further downgrades, although core German debt was little changed. US crude oil futures jumped 1.6 per cent, topping $106, to its highest price in 30 months as a counter-offensive by Libya's Muammar Gaddafi against rebels deepened fears that the African nation is headed for a civil war.

Oil prices shot up to over $100 per barrel in New York as strife in Libya, Bahrain and other oil producing countries in the West Asia show no signs of ending.

"Industrial commodities, particularly those which are imported, bring in inflation along with them into the country. Such inflation may call for some government controls, besides monetary measures," said Sachchidanand Shukla, chief economist of Enam Securities.

"In 2008-09, the government had put some caps on price rises by certain industries like steel, coal and crude within the country to check inflation. But if direct pass-through is allowed then it would have an impact on headline (WPI) inflation," Shukla added.

Gold scored with its safe haven appeal in the backdrop of the ongoing geo-political unrest.

The yellow metal's prices, which have been pushed to new highs, are witnessing increasing demand as a hedge against inflation with the rise in oil prices.

"Silver, in addition to its secure investment attribute, saw an increase in industrial demand given its use in industrial applications with the improvement in economic activity, mainly in the developed and emerging economies," Mathur said.

Silver, which was ruling at Rs 35,956 in November, has now touched Rs 51,445, posting a gain of around 43 per cent in the last three months. Gold too, which was ruling at Rs 19,310 in November, is currently at Rs 21,190 - a surge of more than 9.7 per cent.

Besides ornaments, tableware and utensils, silver metal is also used in electrical contacts and conductors, in mirrors and in catalysis of chemical reactions.

Its compounds are used in photographic film and dilute silver nitrate solutions and other silver compounds used as disinfectants and micro-biocides.

Sumit Verma, research analyst of Geojit Comtrade, said, "Taking cue from global prices MCX Nickel has been the top performing commodity in the past three months with returns of 26 per cent, while crude oil was up 18 per cent, copper, lead and zinc with gains of 17, per cent each."

Courtesy: Mail Today