Inflation Could Inch Upward as Unemployment Decreases
Posted on February 5th, 2011
Saving money may become more difficult for many Americans as reports of increasing prices counter the good news of decreased unemployment. While there is no official report that inflation is on the rise, with manufacturers and retailers reporting their increases, the newly employed may not be able to hold on to as much money as desired.
Inflation a Possibility
According to a new USA Today report, an inflation increase is a real possibility with news from recent earnings reports that some retailers and manufacturers plan to boost prices this year on groceries, clothing and other items, despite holding firm on prices in 2010.
Unfortunately, businesses feel pressured to increase their prices thanks to increases they’ve seen on their food, energy, cotton and other global commodities. Here are just a few examples of expected price increases:
- Grocer Supervalu plans to increase prices 3 percent for items like cereal and 14 percent on items like cooking oil.
- UPS plans to increase fuel surcharges on Monday to 6 percent from 5 percent on ground packages to offset 26 percent jump in 2010 fuel costs.
- Hogan Tire in Northern Virginia has already increased tire costs by 18 percent due to the rising cost of rubber.
Last year, firms said they absorbed as many costs as they could due to the struggling U.S. economy and fear that they would drive away penny-pinching consumers. But now, unable to further withstand shrunken profit margins, they feel they must increase costs just to stay in business.
Is the U.S. Ready for Inflation?
Now that prices are likely to increase, many wonder if the United States is ready to handle them. Holding with near-zero inflation for years, consumers have grown accustomed to costs that were not extremely low, but low enough to manage.
Now that the unemployment rate has dropped, according to a report from the Labor Department on Friday, some may think the economy is improving enough to handle it. Unfortunately, the rate has only dropped to 9 percent, 0.1 percent points lower than the last report, meaning that while only a few jobs have been obtained, prices could increase significantly.
This means that individuals who are newly employed (and even those with steady employment) may not benefit from what could be perceived as an improving economy. Those who look to put money away in savings accounts or even 401(k)s for retirement could end up spending their extra cash on food, clothing, shelter and energy.
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Tags: Inflation, Inflation Inch
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