tangent4ronpaul
04-05-2011, 12:30 AM
http://www.washingtonpost.com/business/economy/inflation-inflicting-pain-as-wages-fail-to-keep-pace-with-price-hikes/2011/03/09/AF6K2seC_story.html
Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.
And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.
Inflation is typically the symptom of an economy overheating. Workers can’t keep up with the demand for the vast array of things they make. Abundant dollars pursue scarce goods and services, forcing prices and wages up. The solution is simple enough: Central banks, such as the Federal Reserve, increase interest rates, applying brakes to the economy.
...
Few would argue that the U.S. economy, with its 8.9 percent unemployment rate, is overheating at the moment. Rather, the global economy — in particular developing nations such as China and India — is growing so rapidly that it’s straining the available supplies of all types of raw materials.
Although unique factors have contributed to the latest price shocks, such as turmoil in the oil-rich Middle East and a weak Russian grain harvest this year, there’s a common, more fundamental cause. As people in poor nations become wealthier, they develop middle-class tastes. They wish to eat more beef instead of just rice, for example, and drive cars rather than bicycles. Those rising living standards in developing nations have left suppliers struggling to grow enough feed grain, mine enough iron and pump enough oil to keep prices near the lower levels of recent decades.
(Good article - continue reading at link)
Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.
And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.
Inflation is typically the symptom of an economy overheating. Workers can’t keep up with the demand for the vast array of things they make. Abundant dollars pursue scarce goods and services, forcing prices and wages up. The solution is simple enough: Central banks, such as the Federal Reserve, increase interest rates, applying brakes to the economy.
...
Few would argue that the U.S. economy, with its 8.9 percent unemployment rate, is overheating at the moment. Rather, the global economy — in particular developing nations such as China and India — is growing so rapidly that it’s straining the available supplies of all types of raw materials.
Although unique factors have contributed to the latest price shocks, such as turmoil in the oil-rich Middle East and a weak Russian grain harvest this year, there’s a common, more fundamental cause. As people in poor nations become wealthier, they develop middle-class tastes. They wish to eat more beef instead of just rice, for example, and drive cars rather than bicycles. Those rising living standards in developing nations have left suppliers struggling to grow enough feed grain, mine enough iron and pump enough oil to keep prices near the lower levels of recent decades.
(Good article - continue reading at link)