Inflation Economy Prices
Inflation In The US:
A Synopsis of The Growing Effects Of Inflation
The Introduction
Inflation
Inflation- that is defined as a sustained increase in general price levels for some set of goods and services in a given economy over a period of time. That it is also measured as the percentage rate of change the price index. There is a variety of inflation measured are in use, because of many different price indices, designed to measure different sets of prices that may effect lots of people. There are two widely known indices for witch inflation rate are commonly reported are the Consumer Price Index (CPI), that measure nominal consumer prices, and the (GDP) deflator, that measures nominal prices of good and services that are produced by a given country or region.
There are other types of inflation such as Regional Inflation- is the Bureau or Labor Statistics breaks down CPI-U calculations down to different regions of the US.
Historical Inflation- Before collecting consistent econometric data became standard for government, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known cost of goods, rather than complied at the time. It is also used to adjust for the differences in real standard of living for the presence of technology. This is equivalent to not adjusting the composition of baskets over time. Demand-pull inflation- caused by in aggregate demand due to increased private and government spending, etc.
The central aim of the all the Banks policy is low inflation. Low inflation means the continuous rising in the general price. All prices, goods, and services, drop so low that it no longer influences the decisions of the consumers and the producers
It is some times stated publicly that the higher the inflation the more jobs it will create, but that is not true. Higher inflation will destroy jobs in the long run that's a fact however some policies aim to lower inflation it might have a short-run negative effect on job creation.
Economic Analysis
Measures of Inflation:
How does our economy measure inflation? Is the measurement in which our economy uses for inflation the best one? The answer to these two questions are intertwined. The U.S. Department of Labor, Bureau of Labor Statistics tells us that the correct measurement of inflation depends on the information that one looks for, whether it be inflation on exports and imports, inflation in the labor market, or inflation on everyday expenses.
The International Price Program, or IPP, is what is used to measure the trade of civilian goods and services between the U.S. and the rest of the world, known as, Import Price Indexes (IPI) and Export Price Indexes (EPI). For an example of what is involved in making up these indexes, if you look on the Bureau of Labor Statistics website the have posted what is titled “Latest Numbers” for Imports and Exports. Under Imports, All Commodities, Petroleum and Petroleum Products, and All Imports Excluding Petroleum are listed. Under Exports, All Commodities, Agricultural Commodities, and Nonagricultural Commodities, are listed.
Employment Cost Index (ECI) measures inflation in the labor market; it's also a “quarterly”1 measure of changes in labor costs. In the beginning development of the production and marking process the Producer Price Index, or PPI, measures inflation in that area. Finished goods, Intermediate goods, industrial commodities, and gasoline are a few that are mentioned as “Commodity Data” under Bureau of Labor Statistics' “Latest Numbers”. Office of Lawyers, General freight trucking, and General medical and surgical hospitals, are mentioned as “Industry Data” under “Latest Numbers”.
The Consumer Price Index (CPI) provides monthly information on how much we as consumers spend on our every day goods and services. These goods and services include things such as: Food and beverages, recreation, medical care, sales taxes, education, government fees, apparel, housing, communication, and transportation. What the CPI does not include Social Security taxes, real estate, stocks and bonds, and life insurance, and anything related to savings or investment.
Role of Inflation:
Inflation keeps the economy going and in a way makes it grow. When there is deflation people tend to save more rather than spend which causes slows down the economy. Where as when there is little inflation people tend to do more spending and gives people the incentive to invest in the long run. Although if inflation is too high then it causes consumers to reduce their spending because it becomes unaffordable.
Problems with Inflation:
Inflation impairs consumers with fixed income, such as students, the hurt worst because it reduces their purchasing power, in which case effects GDP as well. Also if inflation were to be higher in the U.S. than in Mexico then U.S. exports would go up in price and the economy would fall under a “current-account deficit”, www.wikipedia.org. If inflation goes up so do wages, which is fine until there is what Wikipedia calls a “wage spiral” where wages are aimed to maintain at the same level as inflation in order to protect real income.
Causes of Inflation;
In macroeconmics one of the current issues that have had our class in an uproar is the rising inflation in the US in 2007. Many have noticed the outrageous rise in rates for our interest rates, the rise in food, and gas, and the fall of economies profits as a whole. Four causes of inflation in 2007 are the affects of monetarism, rational expectation from our surrounding countries, other countries trying to make a profit, and the non-controlling of inflation. In the next few paragraphs the causes of the rising of inflation will be brought to ones attention in the causes of it.
According to Merriam-Webster, inflation is “a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.” Over the past couple years America has had an increase in inflation. Monetary inflation is the increase in the amount of money in circulation. “ The dollar loses value as the direct result of the Federal Reserve and U.S. Treasury increasing the money supply. Inflation, as the late Milton Friedman explained, is always a monetary phenomenon. The federal government consistently wants to spend more than it can tax and borrow, so Congress turns to the Fed for help in covering the difference. The result is more dollars, both real and electronic - which means the value of every existing dollar goes down”(Ron Paul,2007,par2).
Monetary policy can control the growth of demand through an increase in interest rates and a contraction in the real money supply. Higher interest rates reduce aggregate demand by discouraging borrowing by both households and companies and increasing the rate of saving. Higher interest rates could also be used to limit monetary inflation. A rise in real interest rates should reduce the demand for lending and therefore reduce the growth of broad money.
One of the main points politicians have been making is the need to control inflation. “All summer, key economic figures have been giving contradictory indications as to how well anti-inflationary efforts have been succeeding. The expansion rate of the overall economy has declined considerably; corporate profits and housing starts are off, and there are a few signs that consumers are beginning to curb their appetites for buying. During the first ten days of August, new-auto sales, for example, fell to an eight-year low for that period. On the other hand, personal income is rising sharply, and declining labor productivity means that manufacturers pay more in both labor and materials to produce the same items”(Times,1969,par.2).
Inflation Control:
Effective policies to control inflation need to focus on the underlying causes of inflation in our society. If the main cause is excess demand for goods and services, then government policy should look to reduce the level of demand. If cost push inflation is the cause, production cost need to be controlled for the problem to be corrected. Many countries are now realizing that they can push costs when it comes to gas prices. Gas is one of the major goods that have to be used in order for the economy to run well. If one rises the price of gas it affects the economy as a whole. Food in grocery stores rise because of the price to travel and put the goods in the stores.
Conclusion
In summary, we have measured inflation as a whole in 2007, the international price program, the employment cost index, and the consumer price index. All of these are cost influences that affected the influence of inflation in its entirety. We have also shown to you the four causes of inflation in 2007 and they are the affects of monetarism, rational expectation from our surrounding countries, other countries trying to make a profit, and the non-controlling of inflation.. The federal government consistently wants to spend more than it can tax and borrow, so Congress turns to the Federal government for help in covering the difference. Inflation keeps the economy going and in a way makes it grow. When there is deflation people tend to save more rather than spend which causes slows down the economy. In the future inflation will steadily rise and will cause a major recession if we do not take proper measures in budgeting as an economy in the United States of America.
References
http://www.lewrockwell.com/paul/paul354.html
http://www.time.com/time/magazine/article/0,9171,901318,00.html
http://stockmarketjungle.com/cpibyregion.jpg
http://www.inflationdata.com/inflation/images/charts/Annual_Inflation/annual_inflation_chart.htm
http://fintrend.com/ftf/images/charts/MIP/Moore_Inflation_Predictor.htm
http://fintrend.com/ftf/images/charts/ROC/NYSE_Rate_of_Change.htm
www.bls.gov
www.wikepedia.org
www.investopedia.com
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