Economics

Posted: August 7th, 2013

Wholesale Prices

This article specifically deals with inflation in the United States market caused by rising prices of fuel and agricultural commodities, consequently raising wholesale prices. Prices have continued rising in the last month and continue rising up to this month. Oil, being the major source of energy for companies, increases their costs of production, which means they incur more costs for buying the same amount of goods they bought before. This means that buying at wholesale is at higher prices than before for the companies, and they might consider increasing the price of goods and services, as well. As long as the demand for energy continues to rise across the globe, inflation in oil prices will continue to rise. Costs of goods and services will rise with the rise in costs of energy especially gasoline and natural gases. Their supply is not increasing.

In the last month of august, the wholesale price of goods has gone up in United States following the rising cost of fuel, specifically gasoline and natural gas. The wholesale price for both of these two fuels rose by 13.6% and 11.9% respectively (Bartash, 2012). This resulted in an increase of 6.4% of the energy index. The rising prices in oil caused the rise in cost of gases by almost 8% per gallon to $3.84. The increase in cost of energy raises the cost of production for factories to produce goods and services, as well. Thus, they are left with the choice of passing the costs to customers or bearing the costs. However, for fear of competition, many companies have not extended the rising costs to consumers. Prices of goods continue to rise with the biggest risers being dairy goods and eggs. Gasoline and gases or energy is one of the most crucial commodities of today. When their supply is limited, prices of many commodities are affected since energy is required for their production and transportation.

In addition, the article cites that supply of agricultural commodities is likely to go down due to an anticipated drought (Bartash, 2012). This will mean that goods will reduce within the market, raising the costs. The drought is set to cause a shortage of many agricultural goods that are essential. As costs continue to rise, the value of money is reduced, where one needs more money to buy the same goods one bought with a smaller amount of money. This means the money will not have the same value in the future if prices continue to rise as they are rising. More so, the demand for energy continues across the whole globe, which means that almost all countries will be affected. Therefore, its supply will continue to be a problem in the market.

(Inflation is defined as the persistent rising of prices of commodities and services in a country, which causes a fall in the value of the currency). As a country, inflation happens when most of the items and services continue to rise persistently, causing several effects such as reduced savings, increase in cost of imports among others. Inflation occurs when demand for commodities and services is higher than the market can supply. As the law of demand and supply stipulates, when the demand is higher than the supply, the prices of the same goods and services increases and when the supply is higher than the demand, price will go down. The former is presented in this event where there are many people willing to buy the commodities and services. When there is more supply than demand causing a shift in prices downwards, it is referred to as deflation, which is the opposite of inflation. Inflation can also be defined as too much money chasing very few goods and services. Therefore, when the supply of food, gasoline and gas becomes less than the amount demanded, their prices go up.

This article as mentioned specifically addresses inflation that is related to supply and demand. The article suggests that the price of wholesale has gone p in the United States over the last month caused by increasing fuel prices. Fuel prices increase due to higher demand. Thus, being a source of energy to companies means their cost of production is increased. Additionally, the expected drought will cause a reduction in the supply of food in the market. This will cause another rise in price for food commodities further lowering the value of the currency. If prices continue this way, it is not only the wholesale prices that are going to be affected but also retail prices since firms have to make a profit. Currently, the companies have not extended the cost to the consumer, which the article cites as a way of avoiding competition from lower price companies. At this time when the economy is not particularly stable, consumers become price sensitive. However, companies can have another solution to tackling such rises in wholesale prices before extending them to the consumers. Other alternatives can be sought such as reducing some of the costs associated with production such as a reduction in energy consumption.

Reference

Bartash, (2012). U.S. wholesale prices jump 1.7% in August: Escalating cost of gas, food triggers biggest rise in three years. MarketWatch. Retrieved from http://www.marketwatch.com/story/us-wholesale-prices-jump-17-in-august-2012-09-13 on September 14, 2012.