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Inflation Isn't About The Price Of Corn. It's About Wages.

by Jacob Goldstein
Sep 5, 2012

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Corn prices are going through the roof. The price of gasoline is rising again. Inflation, though, is still low.What's more, as Bloomberg notes today, investors are betting that inflation will remain low for years to come.

Rising gas prices do tend to contribute to higher headline inflation. But the price of corn and other basic food products has a much smaller influence, because the price of food in the U.S. is driven much more by things like marketing and labor.

That's true for lots of things. We think of ourselves as buying stuff. But when we buy buy goods and services, what we're largely buying is labor.

The cost of labor — the average wage — is basically flat. (No surprise, given the high unemployment rate.) And it's wages, more than anything, that drive inflation.

That's the big reason why inflation is low and why investors — the people actually betting money on what inflation will be — think it's going to stay low for another decade.

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