Randy1960: IMO, Rising oil prices are inflationary and so is the fact that my water bill continues to go up. Maybe the Fed should just control water rates since everyone has to have water even more so than oil…gg
Brinker...silly stuff.
Inflation is demand (a component of which is money supply) verses supply, but not entirely. You have basis cost to consider. So even if demand does fall, if the price to produce remains high so will prices although you make see some backing up of prices as produces reduce their profit margin in order to move product.
Bottom line, if folks are spending more for oil and water then they have less money to spend on other things. So demand falls for other things. However, the increased transportation cost due to higher oil prices and the increase price of petroleum based products and components in products results in higher basis cost regardless of demand.
The US (the Western World for that matter) has seen low skilled workers' pay stagnant due to the increase use of the third world labor pool. However the US low skilled workers have seen prices fall for a lot of the goods and services they buy because of the increased use of the third world labor pool. So low skilled US laborers have had their stagnant wages offset by the lower prices they pay for many goods and services.
However with the dollar declining and oil prices increasing that is beginning to change. I think the US is more at risk of stagflation than deflation or inflation...
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