Monday, June 9, 2008

Oil Price Hike to RM2.70

The 40% oil price hike means a spiralling impact on the general price level. Since there are multiple layers in economic activities, the final price level will be a multiple of this fundamental hike.

Real purchasing power will fall and with it the real aggregate demand. Companies at the margin trying to make ends meet will now have to close shop. Unemployment will rise. To suvive, companies will have to go for the export market. China has the misfortune to be in the midst of a major natural disaster. But local firms may help to supplement supplies in China to make up for any break in their supply chain.

In the meantime, the man and woman in the street will have to suffer from the general price increase, and in some cases, loss of jobs.

1 comment:

CT Choo said...

Yes. Very succinctly put. A new era of economic austerity has loomed before us. The question is, how do we deal with it? That is our joint challenge.