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Inflation on the Rise

Essay by   •  June 11, 2012  •  Essay  •  1,174 Words (5 Pages)  •  1,574 Views

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As seen in the economy today, America has made a comeback from a serious economic downfall. The United States unemployment rates have decreased by .9 percent within the last five months, and we can see an improvement in both producer and consumer price index and average hourly earnings, as records from the Bureau of Labor Statistics show. With the economy making a turn around, there is also a risk of serious inflation. Inflation is the rise in the general level of prices in an economy. When inflation occurs, each dollar of income will buy fewer goods and services than before, and therefore reduces the purchasing power of money. But inflation does not mean that all prices are rising, instead during a period of inflation, some prices may be relatively constant while others may even fall.

This paper will be talking about how the economy may oversee inflation in the United States in the near future. There are many pros and cons to expecting inflation. After the economy experienced and may be still experiencing an economic growth, there is still factors to consider about how the economy is going to take this future inflation.

An article written in The New York Times, which talks about gas prices rising, shows one con to an outlook on inflation. Gas prices are approaching record highs, but so far most Americans do not appear to be drastically cutting back their driving or even their spending as they did in 2008 (Hansen 2011). Economists are questioning what would happen if gas prices continue to go up and remain high. There was a survey done of about 100,000 stations that showed gas prices were now averaging $3.77 a gallon nationwide. The average is already more than $4 in California, Hawaii and Alaska, and analysts at the oil information service said drivers were paying more than $4 at some stations in at least three other states -- Illinois, Connecticut and New York (Hansen 2011).

In this situation we see cost-push inflation because the price in oil, which is an imported raw material, goes up which drives the per-unit production costs at each level of output up also. The price level goes up making this a bad situation for the economy now, and if we see these prices continue to rise inflation may take into effect and cause our nation for a cost-push situation. But this could also generate a recession again, in which households and businesses concentrate on keeping their resources employed, and not on pushing up the prices of those resources.

In other cases, prices are falling while they are increasing at the same time. As said in one article we are being led to believe that falling prices are evil, and that only an increase in inflation can save our economy. From the moment the financial crisis took hold in 2008, Fed Chairman Ben Bernanke has looked to lower the dollar's value and cause asset prices to rise - especially in real estate. The Fed can't control the exact rate of inflation, nor can it direct where inflation will be distributed across the economy (Pento 2011). Thus, we are seeing an increase in prices. Data released on the week of March 20th shows that the median price of existing homes declined 5.2% in February compared to the previous year, to $156,100. "New home prices fared even worse; the median sales price dropped to $202,100 in February, from $221,900 a year earlier - a tumble of some 9 %.( Pento 2011)"

Meanwhile, over the same period, the dollar has dropped over 4% against other fiat currencies, according to the Dollar Index. As the dangers of inflation

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