Wednesday, February 16, 2011
Steady improvement in the economy may soon cause other problems- faster inflation. Shoes, clothes, tires, plastics and other products all cost more at the wholesale level last month. This puts pressure on businesses to pass the increases along to their customers. We are getting used to gas prices being high, but now it is hard not to notice prices going up on other things. “Abercrombie & Fitch which sells clothes primarily marketed to teenagers, said it expects to raise prices later this year because of soaring costs for raw materials, particularly cotton.” The cost of cotton, for example, has doubled in the past year. The price of corn has doubled in just six months. The maker of Hanes underwear and T-shirts raised prices in this month and may do it again this summer. Food companies like Kraft Foods and McDonald's have said in recent weeks that they will raise prices this year, too. Through most of last year, the government worried more that the weak economy might cause deflation - a prolonged drop in prices and wages, which can make people unwilling to spend. In response, the government acted to strengthen the economy and raise inflation slightly. A healthy economy usually has some inflation, but it is low. "It's too early to panic about inflation," argues Nigel Gault, chief U.S. economist at IHS Global Insight. "There won't be an inflationary spiral unless wage inflation picks up."