Inflation in the U.S. has now become the number one concern for Americans according to a recent CNN poll. The most recent BLS report on the CPI shows however that inflation in the U.S. is actually rather slow at 4.0% (for all urban consumers) between February 2007 and 2008. Excluding food and energy prices, inflation was only 2.3% over the past year (also see NYTimes article related to the PPI (what is the difference?)).
It is believed that the focus on ethanol production has helped to fuel inflation. However, others disagree with this analysis. While it is difficult to entangle these effects, it should be apparent that government policy definitely plays a big role in inflation.
Jeffrey Frankel has written that many believe the interest rate adjustments by the Fed have fueled increases in energy prices during the past year. However, others believe that U.S. interest rates have little to do with foreign energy investments and production. Since the rate cut on Tuesday 3/18, oil prices have fallen dramatically, counter to Frankel’s point, likely to be associated with a global economic slowdown, meaning people around the world need less oil and food.
Questions you might try to answer:
- In the CNN article, there is a diagram on the right hand side that says whether or not items today are a good deal or a bad deal based upon their changing prices. What is wrong with what they are doing here, if there is anything wrong?
- Which side do you take on the effect of interest rates on commodity prices, oil prices in particular?
- Do you believe that ethanol production is driving inflation higher? Do you agree with the government’s stance on supporting ethanol production to solve our energy problems?
I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.