1. Discuss the difference between the wholesale price index and the consumer price index. Which do you feel lends a better forecast of future economic conditions

Both the consumer price index and the wholesale price index are measured with and without food and energy price components. When food and energy prices are left out of either inflation measure, the measure is referred to as "core" inflation rate. The consumer price index and the wholesale price index differ in that the wholesale price index does not include taxes, subsidies or distribution costs that accumulate as goods and services are moved through the value chain from production to consumption. This difference gives economist reason to expect rises in wholesale prices to be passed on to consumers in the form of higher prices.

2. Explain the economic concept of cost-push inflation. Do you see any relationship between various wholesale prices indexes and this kind of inflation? Explain.

The economic concept of cost-push inflation refers to the situation where businesses experience increases in raw materials, distribution costs, and other cost which increase the firm's cost of production. The market place allows some of these increased costs to be passed on to the consumer. This process is called cost-push inflation. The increasing costs "push" up consumer prices. Students should see that, although commodity prices are not included in the indexes directly, the effect of price shocks does appear in the indexes indirectly.

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