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To: Barney Gumble
...changes in prices due to changes in supply & demand do not effect inflation.

Not so sure I buy this. The supply curve does reflect input costs. For China, recent product recalls (mainly toys) suggest they are going to have to increase quality control elements of production plus use more expensive inputs (e.g., non-lead based paints). This will shift the supply curve up, which (ceteris paribus) means that prices will rise. To the extent that rising input prices raise output prices, supply can cause inflationary pressures in the market. Look what ethanol production has done to milk prices and what increased demand for oil in China has done to world oil prices, and the trickle effect of those price increases.

13 posted on 10/02/2007 3:23:12 PM PDT by econjack ("You have enemies? Good. That means you've stood up for something, sometime in your life.")
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To: econjack

Rising prices due to changes in the supply & demand curves do not directly result in inflation. Rising prices could mean less sales at Walmart, possibly slow the economy, which may lead the Fed to cut rates, which could lead to inflation.

This is “inflationary pressure.” However, the rising prices themselves do not cause inflation.


22 posted on 10/02/2007 3:57:41 PM PDT by Barney Gumble (A liberal is someone too broadminded to take his own side in a quarrel - Robert Frost)
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