Inflation out far from clear
http://www.canada.com/nationalpost/financialpost/story.html?id=6cb443f6-5e93-45e0-a7fc-bc63f0023296&k=44388
This news article talks about the potential inflation problem in the US economy. This is due to the recent increase in the oil prices which had a trickle down effect on other products such as copper and nickel and potentially agricultural prices. According to Ben Bernanke, the US Federal Reserve chairman, inflation is indeed a growing problem for the US economy and the future is still very uncertain. However not everyone believes that the recent price increase in goods is going to lead to an inflation problem like that of the 70’s and 80’s. David Laidler, a member of the C.D. Howe Institute, does not believe that an inflation problem will occur in this situation due to the theory that the government will have learnt from the past mistakes and recommitting it would be highly unlikely. Also as long as central banks continue to monitor the inflation growth carefully, there will be less chance of inflation problems in the future. To further downplay the potential of a huge inflation problem in the near future, the US economy is current not doing too well due to their housing market mess. The article also states that there are current three majoring things that are occurring around the world that is preventing inflation. In Germany, they realize that increase in wages gets out of hand; the productivity of goods would increase therefore an increase in price, so as a result they monitor the wage very carefully. In Britain, there is high increase in wages however to accommodate that, the Bank of England has set up more rate hikes which will force the economy is slow down. Lastly, in the US productivity has slowed down however wages are going up as a result company’s will experience a decrease in the profit margins.
Relation to chapter 5 – Inflation
Chapter 5 talked about the two types of inflation, Demand-pull inflation and Cost-push inflation. The current situation in Germany is an example of them attempting to prevent cost-push inflation. For example, wages in Germany are being heavily monitored and contained which reduces the pressure for manufactures to increase their prices to compensate for the production costs. Britain is doing the exact opposite to control inflation, they allow for wages to increase however they will attempt to slow down the economy through the Bank of England by creating high hike rates. In the US, companies simply don’t transfer their increased production cost to the consumers but take the hit or loss by decreasing productivity. The three situations here are examples of cost-push inflation prevention since they are all related to wages increase.
Despite the risk of inflation in the US economy due increasing prices of oil, it seems unlikely this would occur in the near future. Like this article stated, because of the recent struggles in the US housing market, the possibility of inflation is very low. The explanation for this is that the housing market will likely slow down the US economy which could led to higher unemployment rate resulting in a lower general price level. With that said the US housing market may be a blessing in disguise by reducing the chances of inflation. For this reason I do not see the possibility of inflation striking the US economy.
