Macroeconomics -- Inflation Domestic and National News

Macroeconomics -- Inflation

Domestic and national news are constantly talking about the rapid changes and increases in prices of basic commodities today. Prime commodities for a specific economy or country are discussed with the same intensity as changes in the global market prices for important, universal necessities such as oil. Prices of basic commodities are not the only ones susceptible to increasing in value. Services, too, particularly wages, are subjected to increases ultimately driven by union power or collective bargaining agreements between manufacturing companies and corporations and its workforce. Changes in the supply of raw materials used to produce products and commodities and services required to mass produce these products or to provide services on a large scale are the drivers that serve as catalysts to price increases. This increase in prices and costs of products and services over time, respectively, is called inflation (Maunder et al., 2000, p. 147).

Related to the concept and issue of inflation is the Consumer Price Index or CPI, which is a measure established to monitor and determine the change in price levels of goods and services, commonly called the "market basket" of goods and services. CPI is a useful tool in determining specific categories or sub-categories of goods and services that are changing or rising steadily over a specific period of time. This change in price level is often computed or compared against the price level for a specific "base period," which could be the cost of a specific group of goods and services for the year (for example) (p. 149). Thus, the CPI is a good indicator not only of the price level changes for specific groups of goods and services, but also in providing a general overview of the overall price level increase in goods and/or services for a particular economy or country.

In the article by CNN Money entitled, "Food prices on the rise as drought worsens," author Tymkiw (2012) discussed the ramifications of the drought that Midwest America is presently experiencing on the corn yield for the next half of the year. Tymkiw reported that the effects of the drought in Midwest America had started as early as December 2011, and its effects are now felt by the forecasted low corn yield by farmers in the region. Consequently, lower corn yield would lead to lower corn supply in the market, an event that will surely result to increased corn prices. Unfortunately, this increase in corn prices does not stop and it actually snowballs to include price increases in commodities or goods that are also dependent on corn, such livestock who depend on corn feed for food. Inevitably, an increase in corn prices would lead to an increase in livestock/meat prices as well. In fact, the U.S. Department of Agriculture has forecasted the price increase in beef and veal to reach from 4% to 5% in the coming months (par. 6). Interestingly, the USDA also linked the corn price increase with soybean price increase, claiming that the prices of these crops "always move together" (par. 10). When this happens, prices of commodities such as dairy products such as eggs and milk (directly related to corn price increase) and cooking and vegetable oils (related to soybean price increase) will also increase (pars. 15-16).