The Department of Labor reported today that the Producer Price Index rose 1.2% in July on the heels of jumps over 1% in each of the prior two months. For those keeping track, wholesale prices have risen 4.4% in the last three months (and 9.2% in the past year).
These price increases get passed along to the consumer, of course.
There are a number of explanations for why this is happening, but the biggest one, in my mind, is the weak dollar policy of the Federal Reserve. There is simply too much money circulating right now. The more they put out there, the less it is worth. The Fed must soon start to hike interest rates to prevent an inflationary spiral.
The Fed has done a good job so far with the economic crisis, but there must be balance between growth and inflation.
Update (8/19/08): Here’s Brian Wesbury in the Wall Street Journal on the dangers of inflation.