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Higher Costs Cutting Business

Published 08/20/08 Alexia Cameron - Print Article
E-mail - editor@economyincisis.org

Data released on Tuesday by the Labor Department highlighted the detrimental effect rising prices have had on the economy. Prices for goods purchased by American Businesses have jumped nearly 10 percent over the past year, resulting in the sharpest increase since 1981, according to the New York Times.

Businesses have been absorbing some of the higher costs while passing the remaining increased costs onto the consumer. Meanwhile, the American worker continues to deal with a shrinking job market and deteriorating spending power.

“There is virtually nothing that we have touched in the last six months that hasn’t increased,” said Gary O’Neal, a division manager at Central Plains Steel in Wichita, Kan., which distributes steel to manufacturers of construction and farming equipment. “The prices have increased so rapidly and so high compared to historically where they’ve been. It’s just been uncharted territory.”

Prices charged to businesses for wholesale goods increased by 1.2 percent in July, which was twice as fast as economists forecast. Core producer prices- which exclude food and energy- rose by 3.5 percent within the past year, the largest annual increase since 1991. The data also stated that consumer prices have expanded at the fastest pace in 17 years. According to the New York Times there seem to be only two alternatives: inflation will continue to rise, shrinking the purchasing power of wages, or rising prices will be canceled out by weakness in the economy.

Source New York Times:

Prices for goods purchased by American businesses surged more than expected in July and have jumped by nearly 10 percent over the last year — the sharpest increase since 1981.

...

So-called producer prices — those charged to businesses for wholesale goods — increased by 1.2 percent in July, or roughly twice as fast as most economists had forecast. Core producer prices — which do not include food and energy — rose by 3.5 percent between July of this year and July 2007, the largest annual increase since 1991.

That data followed reports released last week showing that consumer prices also expanded at the fastest pace in 17 years.

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