Monday, May 9, 2011

Obama to Blame for Food, Fuel Inflation

Wal-Mart CEO Bill Simon recently issued a dire prediction for the month of June. Specifically, Simon has gone on record and predicted that the long-anticipated inflation stemming from the Pelosi/Bush bailouts of 2008 and the Obama Stimulus will set in with a vengeance during the month of June.

Inflation is "going to be serious," according to Simon. "Except for fuel costs, U.S. consumers haven't seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."

There has been much talk in recent months over the prospect of food prices increasing dramatically. Food prices, like most other prices, are being driven up by inflation first and foremost.

What causes inflation?

Remember all those bailouts? Obama's trillion-dollar stimulus? All the money borrowed from China and printed by the U.S. Federal Reserve?

All of the above drastically increase the rate of inflation. Food and fuel prices are the first of which people take notice because they are commodities that everyone must buy. Most other prices lag behind because people can choose not to buy non-essential items, which causes retailers to lower prices in hopes of stimulating buying by the consumers. While the retailer is feeling the full effects of inflation, competition over marketshare prevents them from immediately passing it along to the consumer. Instead, they keep prices as low as possible for as long as possible in order to try to gain a few percentage points worth of their opponents' market share in hopes of converting that chunk of business into profit at a later date once the economy has recovered and consumer behavior has returned to its normal levels of activity.

That said, eventually retailers, grocers and the various other merchants will have to raise prices in order to meet their costs and hopefully earn a small margin (profit). When that happens, consumers will feel the full effect of the coming widespread inflation.

For a more in-depth explanation of the relationship between Obama's stimulus and inflation, check out this article, which appeared in the Wall Street Journal back in February of 2009.

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