Rising+wholesale+prices+spur+inflation+concerns+-+Christy

=Rising wholesale prices spur inflation concerns = Source: [|http://www.3boston.com/news/nation/articles/2011/02/16/rising_wholesale_prices_spur_inflation_concerns/]

By Christopher S. Rugaber/ AP Economics Writer / February 16, 2011

__Brief Summary: __  This article is mainly about the steady improvement in the economy which may soon lead to a faster inflation, because the cost of producing products had increased at the wholesale level last month, "putting pressure on businesses to pass the increases along to their customers." The determinant of supply (increase in cost of production) leads to the decrease in supply and therefore increasing the price of products. As a result, there are many critics that are now criticizing the wholesale inflation that increases the price of all products throughout the economy. The high costs leads to high prices for customers which are dealing with high unemployment. Many economists fear that inflation could become troublesome later, and therefore the Federal officials are not sure if they should continue their $600 billion bond-buying program to help the economy by buying government bonds and supposingly help by lowering interest rates on bonds, driving down interest rates for other types of debt like loans ; yet the flooding of new money in the economy ignites inflation. Lastly, the Fed officials decided to maintain the program as inflation is not yet a problem- the Federal is now more worried on spur deflation (drop in prices and wages, making people unwilling to spend).

__Vocabulary: __ Inflation: a rise in the general level of prices of goods and services in an economy over a period of time Commodity: Products Deflation: a decrease in the general price level of goods and services Bond: Similar to a loan Retail: The sale of goods to ultimate consumers, usually in small quantities

__**Graphs:** __ __Graph 1: __  This graph shows an example of Abercrombie & Fitch Co. mentioned in the article. Abercrombie & Fitch Co. says that it expects to raise prices later in the year because of "soaring costs for raw materials, particularly cotton."Shown on graph 1, as the determinant of supply (Cost of production) increases, the company have to change in its supply and therefore decreasing in the quantity supplied and increasing in price of products.

__Graph 2:__ The article also states that the increase in the cost of production because commodity prices have risen, due to "rising demand from fast-growing developing economies and bad harvests in many countries". For example, the cost of cotton has doulbed in the past year. Therefore, as a result of the increase in demand of raw materials (d2) and at the same time the decrease of supply (s2), the price of the market is now P3 with a quantity produced at Q3. Also as the quantity supplied is lower than the quantity demanded and therefore there is a shortage in products.

__**Evaluation:** __ I do not completely, but disagree on the federal's solution of continuing their $600 billion bond-buying program to help the economy by buying government bonds and helping by lowering interest rates on bonds, driving down interest rates for other types of debt like loans, because inflation means the prices of products will increase. Currently, the economy still have a huge problem with unemployment and therefore high prices of products will lead to difficulties to many people as they are not able to afford the necessary goods in daily life. As the article stated, "wages are not likely to rise quickly anytime soon. High unemployment means employers aren't under much pressure to pay their workers more." Therefore, if the prices of products continue to rise, many people will suffer. Therefore, as neither inflation nor deflation is good for the economy, the federal should try to set price bands other than just buying government bonds, and try to keep the economy with a lower inflation. (as the article states that "Low inflation is generally consistent with a healthy economy."- This is because low inflation means there will be a higher price of products compared to original yet it will not be too high that people are not able to afford. Therefore, this will help the economy as a higher price results in more revenue for firms, which leads to investment of all kinds.) In conclusion, i disagree with the federal's solution of continuing its $600 billion bond-buying program because I think setting price bands will be more effective in keeping the price of products in the range where people are able to afford. This way, both the producer and consumer will benefit, rather than the situation now where the consumer suffers more. Yet, i agree with the articles's 'Low inflation is generally consistent with a healthy economy." because it will have a higher price (compared to original) that will help the economy. <span style="font-family: arial,helvetica,sans-serif;">