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Archive for Friday, January 14, 2011

Higher commodity prices may spur inflation

January 14, 2011

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— Rising wholesale prices for food and energy are putting pressure on manufacturers and retailers to pass higher costs to customers. It’s a trend that could raise inflation in the United States and slow economies in Asia and Latin America.

U.S. gas prices have topped $3 a gallon, and grain prices have reached a 2 1/2-year high. Some lawmakers say the increases illustrate the need for tighter limits on speculation in commodities markets.

Airlines, clothing manufacturers and some grocery stores have already raised retail prices. And even those companies that have resisted increases because they worry that customers can’t afford them may be more reluctant to hire because of the squeeze.

Some economists expect prices to rise faster this year than last, although not fast enough to cause policy changes at the Federal Reserve, which has the power to raise interest rates to keep inflation in check.

And though the higher prices could be a drag on consumer spending, they shouldn’t derail the overall economy, economists say.

The price of corn, soybeans, wheat and other grains has shot up since last summer as bad weather has hammered harvests in Russia, Australia and Argentina. That raises the cost of feeding livestock, and in turn raises prices for beef and poultry. Oil prices, currently at about $92 a barrel, are rising because of strong demand from fast-growing developing countries.

Wholesale prices rose 1.1 percent in December, the Labor Department said Thursday, the biggest increase in 11 months. Higher energy and food costs drove the increase. So-called core prices, which exclude those volatile categories, rose just 0.2 percent.

But the report can’t be dismissed just because most of the increase came in food and energy prices, said Joel Naroff, chief economist at Naroff Economic Advisors. “These are not products which you can do without very easily,” he said.

Last year, Americans spent about 8 percent of their money on energy, which includes natural gas, electricity, gasoline and motor oil. They spent about 13 percent on food.

Comments

Fossick 3 years, 3 months ago

Rising wholesale prices are not the cause of inflation, they are the result of it. Inflation is always and everywhere a monetary phenomenon.

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itwasthedukes 3 years, 3 months ago

Yet we keep hearing reports that say there is no inflation. Has anyone else noticed the large decrease over the last few years in the number of ounces of food product you get for your money. When I was young a granola bar had to be at least double the size of one today. If the price has not changed my guess is the inflation numbers do not calculate per ounce price which makes the calculated number even less accurate.

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Tom Shewmon 3 years, 3 months ago

Cloward-Piven, and keep the populace whipped up into a frenzy about crazy right-wingers and their crazy right-winger hate merchants on the airwaves and Islamophobes etc and next thing you know, a crisis that will not be let go to waste.

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Liberty_One 3 years, 3 months ago

Gee whiz, how long have I been predicting this? Worthless Bernanke bills are not the solution to our economic woes. Now we have a recession AND inflation. Thanks Obama and Bernanke!

But you know what, very few will read this article. People care more about some Islamic community center in Manhattan than they do about commodity prices and inflation, even though this is a far more important issue in their day-to-day lives than they know.

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Tom Shewmon 3 years, 3 months ago

Inflation, sustained near 10% UE now for more than a year, housing market expected to be worse this year than last, EPA guidelines expected to make energy costs "necessarily skyrocket"........a new direction for sure. Yes we can!

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