Fuel price and rising inflation

TOI: Budget aftershocks: Brace for fuel price hikes in coming fiscal year

This was a pretty good article in the economictimes in Sundays newspaper and I thought I should use that to restart my blog in all of it's seriousness of at least two posts a week

Now as the article talks about rising diesel prices just to be able to curb subsidy prices,  it mentions a little about a few key factors which could derail the entire scenario

The key points being

1. the rupee to $ value - they assume it will remain around the 55 mark.  The expectations however seem to be more towards the 60 mark - which means further fuel hikes will be required to maintain the subsidies

2. Price of oil - today the price of oil is around the 111$ per barrel for brent crude. The prices of oil unfortunately have not come down even with the recession going on.  So as the global economy starts growing,  it definitely will experience a positive thrust to increase.

The above two factors will ensure that the price of fuel is always on the rise and hence with everything being passed onto the consumers,  it will drive inflation and inflation will drive higher interest rates and hence it will drive lower growth

Its a vicious cycle that we are trapped in. The fuel prices are the biggest threat to the Indian economy and we need to do something to cut this umbilical cord

It's not simple