International Price Escalation - Essay Example

? Running Head: International Price Escalation International Price Escalation Inserts His/her International Price Escalation The world economy is changing at a faster pace these days. Due to the introduction of new technology, advanced production methods and expensive factors of production, the global economy is elevating at a higher level too. Along with this, there are many factors which are causing several things to change in the economic as well as the social structure of various countries. One of those major concerns includes the issue of price escalation at a very quick pace since last many years. This escalation of prices, these days, has been occurring in the prices of oil, electricity, gold and above all, in the prices of food. The rise in the prices of all these commodities started in the year 2006, when the international markets faced a steep hike in the prices of all the eatables around the globe. This essay shall discuss the concept of price escalation along with its causes and the course to be taken to improve it. Price Escalation According to the definitions given by the economists, the concept of price escalation refers, more or less, to the concept of inflation in the economy. It is defined as the tendency and ability of prices to reach the supernormal heights when the products are being marketed. Taking this concept further, international price escalation occurs when the goods are particularly being marketed internationally. The companies, due to the affects of escalation, the companies normally engage their activities and resources in re positioning and establishing their brand overseas (ECLAC, 2006, Online). The major causes that contribute to such price hikes include import duties, trade barriers, added transport, warehousing and freight costs, insurance, international lawyer’ charges, and other necessary charges. Causes There are various causes for the price escalation of the commodities on international level. There may be many imbalances between the demand and supply side of the products and services which causes prices to rise globally without any assurance of coming down \again. More clearly, these causes include: Structural Factors The structural causes of the global price hike include: Rise in the cost of production The implication of the price rise is possible due to the fact that the oil resources are decreasing and getting scarcer with the passage of time. The consumption patterns have been shifting and though, the newer technology is deployed to increase the efficiency but the economic crunch and recession has brought further obstacles. This, in turn, has impacted the prices of food and other bi-products of oil to increase thus, giving shocks to the prices of the related products (Dessus & Hoyos, 2008, Pp. 201). Change in consumption patterns in various countries and sustained rapid growth One of the major reasons for the international price escalation is the change in consumption patterns and trends of the population in various countries. The growing economies such as India and china account for the changing consumption trends of various products. One of the contributing factors to this structural spiral is the continuous expansion and thus, growing demands for the foods and services in various countries (Dawe, 2008, Online). Moreover, the translation of growing economies has increased the per capita income of the consumers, and so they are capable enough to improve their standards of living. This has helped push up the demand of the consumption baskets with higher rates (Dasgupta & Serageldin, 2000, Pp. 111). Temporary Factors The temporary factors accounting for such price escalation include the following: Natural disasters and poor weather The world has experienced bad weather, natural disasters and other avalanches which results into the inevitable damage of the natural products. These adverse events have resulted into an extreme rise in the prices of natural products such as wheat, rice, cotton and other crops (Temple & Johnson, 1998, Pp. 13). Due to this disaster, the bi-products of these crops also become scarce and thus, the demand exceeds supply. This causes an increase in prices. Then, other factors such as desertification, soil pollution, land degradation, heavy rains and floods are also the major sources of spoiling the agricultural products (Planning Institute of Jamaica, 2007, Online). Depreciation of currency Another factor attributed towards the price hike is the depreciation of currency on \international or local levels. This ‘occurs in the manner that the loss of currency’s value push the prices in the upward directions in order to recover the levels in terms of the currencies (Kairi Consultants Ltd., 2007, Pp. 120). Measures to deal with the problem There are many policies and measures, which if implied successfully, can lessen the effect and impact of the price escalations. They include: Anti inflationary policies should be focused upon for the implementation to reduce the occurrence of international price escalation. The monetary and fiscal policies and other funding programs can reduce the implications of the price hikes and reduce their effects on the society (International Monetary Fund, 2006, Online). The new competition policies, in the commercialization and distribution of the imported goods and other items, can enable the decrease in prices of goods and thus, lesser prices can be charged from the consumers. Promoting the production and distribution of local and domestic goods and eliminating the foreign goods from the heavily reliant local markets (United Nations, 2008, Online). To link and implement the nutrition policies and diet and health schedules in order to prevent the local population from eating any unhealthy, expensive goods. Compressing the consumption of imported goods in foods for the purpose of promoting right consumption patterns on the domestic goods (Government of the Republic of Trinidad and Tobago, 2008, Pp. 100). Implantation of social programs and other societal tools in order to improve the deteriorating conditions of the income and expenditures of the country’s economy. All the measures given above promote the formation of social capital and work for the betterment of the society. These factors eliminate, r at the least lessen the implication of the price escalation from the globe. Moreover, maintaining and balancing the social income sand expenditures also help removing the influences of price escalation form the society and its people (United Nations Development Program, 2008, online). References Redrado, M. (2008). Globalization and the determinants of domestic inflation. Presentation at the International Symposium on Globalization, Inflation and Monetary Policy organized by the Bank of France. Paris. Accessed online. Retrieved on July 28, 2011. Temple, J. and P. A. Johnson (1998). Social capability and economic growth. Quarterly Journal of Economics, vol. 13. Pp. 13-20. United Nations (2008). The Millennium Development Goals Report 2008. Accessed online. Retrieved on July 28, 2011. United Nations Development Program (2008). Human Development Report 2007-2008. Accessed online. Retrieved on July 28, 2011. Government of the Republic of Trinidad and Tobago (2008). Budget Statement 2008/2009. September. Pp. 100-135. International Monetary Fund (2006), How has globalization affected inflation? In World Economic Outlook, chapter III. April. Accessed online. Retrieved on July 28, 2011. Kairi Consultants Ltd. (2007). Analysis of the Trinidad and Tobago Survey of Living Conditions 2005. April. Pp. 120. Planning Institute of Jamaica (2007). Preliminary assessment of the socio-economic and environmental impact of Hurricane Dean on Jamaica. September. Accessed online. Retrieved on July 28, 2011. Dasgupta, P. and I. Serageldin (2000). Social Capital: A Multifaceted Perspective. The World Bank. Pp. 111-119. Dawe, D. (2008). Have recent increases in international cereal prices been transmitted to domestic economies? The experience in seven large Asian countries. ESA Working Paper No. 08-03. Agricultural Development Economics Division. Food and Agriculture Organization. Accessed online. Retrieved on July 28, 2011. Dessus, S., S. Herrera and R. de Hoyos (2008). The impact of food inflation on urban poverty and its monetary cost: Some back-of-the-envelope calculations. Policy Research Working Paper 4666. The World Bank. July. Pp. 201-220. ECLAC (2006). Nutrition, Gender and Poverty in the Caribbean Region. Economic Commission for Latin America and the Caribbean. Accessed online. Retrieved on July 28, 2011. Arrow, K. J., and Mordecai, K. 1970. Public investment, the rate of return, and optimal fiscal policy. Baltimore and London: John Hopkins University Press.accessed online. Retrieved on July 28, 2011. John, R. J. 1990. Are government bonds net wealth? Journal of Political Economy 82, no. 6. Pp. 1095-1118. Bresciani-Turroni, C. 1996. The economics of inflation. London: George Allen & Unwin. Accessed online. Retrieved online. Read More