How inflation rate and petrol/diesel prize are co-related?
Answer:
OPEC requires that its oil be purchased in dollars. Even China, Russia, and the european union have to use american dollars if they want to buy oil from opec. If it weren't for this fact, the american dollar would be worthless because there's so many dollars floating around.
the costlier the fuel, the more people will pay for it (or have to pay for it)
this increases the inflation
Petroleum/diesel is a globally recognized as the highest energy supplier. And because there are inter-linkage between economic variables, especially prices, it should not surprise you as such, for the following reasons:
(1). The rate of inflation is an indication of the happening in the economy as well as outside the economy - remember imported inflation/ imported shocks/external shocks in global economic dynamics?
(2). Petrol/Diesel is used both for domestic and industrial uses as well as for commercial purposes.
(3). So, it is logical to think that if the prices of fuel (petrol/diesel) rises, the cost of production/activities at home, industries and commercial set-up will rise up and vice versa.
(4). Consequently, if the price of petrol rises, the prices of other things will rise even beyond expectation.
However, it should be noted that, not all price rise is an inflation; i.e , only when the price rise is unsustainable, which may be the result of some false indication within the economy.
They are not. Core inflation specifically excludes housing and fuel.
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