Inflation Evaluation

12 Pages 3063 Words

n Appendix 3A. Cost-push inflation incurs when the prices of inputs for production increase and thus cause profit margins to diminish. If firms are unwilling or unable to accept the declination in operating income, they will pass these increases on to consumers in the form of increased prices. In a competitive market it would seem that firms would be unable to raise prices, unless there was uniform pressure affecting the aggregate whole of suppliers. (Examples include per unit costs of production, labor costs, energy prices, etc..) Both the dollar cost per person per hour, and the output per person have been increasing since 1997. These increases are most likely in response to technological advances in the public and private sectors. It is worth noting that the advances in compensation have exceeded those in output. Hence firms may have experienced a decline in marginal revenues. Another important aspect regarding wages and output is that the rates of increase for both have been declining since the second quarter of 1998. In the third quarter o...