Discussion for online Economics class - Essay Example

Discussion The consumer price index (CIP) is the most significant measure of inflation in a country. The ratio compares prices of basic goods across different periods. Different factors explain the sharp increase in prices of consumer’s goods in American markets. According to Rugaber (2011), Americans paid more for basic goods in May 2012 compared a similar period in the previous year.Inflation is the main factor that caused the sharp increase in consumer prices. Inflation is the decline in currency value that results from increase of currency in circulation.

The proposed inflation might have occurred due to decline in GDP. In this case, the value of currency in circulation surpassed the market value of American products. In addition, inflation may have occurred due to economic stimulus programs initiated by the government. The stimulus program compels people to spend, hence creating short-term inflation. The CIP index could also have increased due to external forces or forces in the international market. Increase in prices of capital goods such as oil and automobiles could have resulted from competition in the international market.

China is overtaking the US as the largest global importer of crude oil and iron ore. Aggressive measures taken by china are causing an increase in prices of consumer goods around the world. These strategies make imports expensive for the US and other developed countries. As the country continues to pay more for its import’s, the price of the dollar has fallen sharply causing an increase in prices of consumer goods. ReferenceRugaber, C (2011). Consumer prices rise by smallest in 6 months. Retrieved from http://www.krqe.com/dpps/money/business_news/consumer-prices-rise-by-smallest-in-6-months-nt11-jgr_3848660