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Consumer Prices Rising

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Prices on the things you buy have increased 2.1% in the past 12 months. The increases are affecting anything from energy to food. Mark Pingle is a professor of economics at the University of Nevada. He says the economic outlook could be better because of the higher prices, even though they might seem like bad news, right now.

"If your pay is not going up, then inflation is like a tax," Pingle said. "It's hurting you. It's taking away your buying power."

Food costs went up 0.5%, in May. That is the largest jump in nearly three years. Eggs, meat, poultry and fish have increased 1.4%, with fruits and vegetables going up 1.1%. Low beef supply is a result of smaller cattle herds and the drought is having an impact on fruit and vegetable production.

"In general though, prices go up because of increases in the money supply, more money chasing the same amount of goods creates shortages, creates inflation," Pingle said.

Gas prices are up 0.7%, with electricity going up 2.3%. Airline tickets are up 5.8%. That's the largest increase in 15 years. Economists say that's likely a result of fuel costs.

"If they experience the increase in fuel costs, they must pass that on or they're going to lose money on those flights," Pingle said.

But experts say the recent uptick in prices is good for the economy because they encourage hiring and higher wages.

"If sellers of products get a higher price for their product, then business is more profitable and they're motivated to hire," Pingle said.

Pingle says when unemployment is at about 5%, wages increase by about 5%, compared to prices that typically increase by 3%. But he says maintaining a healthy inflation rate is a balancing act.

"You don't want the economy to overheat," Pingle said. "On the other hand, if there's not enough inflation, not enough spending, then there's not much excitement in employees to hire."

Medical costs, housing, and apparel are also up 0.3%. Pingle says inflation is rising at a healthy pace, and it means we could see next year's interest rates go up a little sooner than expected. Especially if prices keep rising quickly.

Written by Paul Nelson
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