Why Are Prices Rising?

Wherever in the world you are, if you've been to a grocery store, a gas station or bought a car, truck, tires or clothes recently, you know prices are up sharply. Yet millions of people are jobless, home prices are falling and in most places, government deficits are mounting. How could prices be rising?

Prices are rising from a combination of events starting with expectations of inflation. Investors see the U.S. Fed issuing a massive flood of money and they watch it travel across the globe, bidding up prices on food, oil, cotton, coal and iron ore. So they speculate in yet higher prices to come and add fuel to the fire.

As the price of oil rises for example, in part also driven by the current turmoil in the Middle East, so does the price of gas. You pay more but so do truckers who deliver goods and farmers who run their tractors. The price of plastic, of which oil is a component also rises. Many things contain plastic such as your television, computer and cell phone. Steelmakers see this and have raised prices six times since November for rolled steel, now up 30%, which goes into cars and trucks and waffle irons and toasters and other essentials.

Other corporations see this and start stockpiling. Auto repair shops load up on tires, motor oil and brake pads, clothes makers inventory additional fabrics and airlines commit to future fuel deliveries at higher prices. And so at least for now, the vicious cycle of price rises has begun and continues.

Dick