Sunday, June 15, 2008

When All Else Fails-2

"India and Malaysia announced increases in fuel prices, risking higher inflation rates and a backlash from consumers to relieve mounting pressure from subsidies on national finances. ... India raised the retail prices of gasoline and diesel by about 10% to trim growing losses at state-run oil-marketing companies that sell fuel at subsidized rates, lifting prices for the second time this year. New Delhi also scrapped a 5% import tax on curde oil and cut the import tax on gasoline and diesel to 2.5% from 7.5%. In oil- and gas-producing Malaysia, the government made a bigger 41% increase in heavily subsidized gasoline prices. ... The decisions to pass along higher fuel costs were taken despite the threat of higher inflation and possible political unrest", WSJ, 5 June 2008.

When all else fails, governments act rationally, or fall. See my 22, 27, 29 and 30 May 2008 posts. This article's authors, like many other journalists, apparently cannot distinguish "inflation" from relative price changes. I recently saw an interview with Bruce Kasman, chief economist of JPMorgan who couldn't distinguish between the two either.

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