Sample Economics Paper on Current Economic Issue Article Review

Current Economic Issue Article Review

An increase in the consumer price index (CPI) of commodities and the high unemployment rate represents notable events that influence inflation within an economy. High unemployment rates lead to a decline in inflation since employers are not under intense pressure to offer high wages because of the availability of many job seekers. Besides, low unemployment rates force employers to offer high wages to attract the few job seekers available. Notably, the high CPI of commodities due to the surge in production costs also affects inflation. The article reviewed herein reports that surging commodity prices and high unemployment affect inflation.

Article Summary

The article “U.S. consumer prices push higher; high unemployment likely to keep lid on inflation,” authored by Mutikani Lucia and published by Reuters on August 18, 2012, outlines that high CPI and unemployment is poised to check the inflation rate within the economy. Mutikani (2020) reports that there was an increase in the price of commodities during the COVID-19 pandemic period, with the CPI rising by 0.6% in July 2020. The article further reports that consumers paid more for gasoline, motor vehicle insurance, telephone services, healthcare, household furnishing, and recreation in June and July 2020 due to broad gains in the cost of goods and services (Mutikani, 2020). Nevertheless, consumers enjoyed relief in food supplies and rent as tenants entered into agreements with landlords on how to settle rent during the depression period of the COVID-19 pandemic.

The article notes that job growth slowed significantly during the month of July 2020 because of the closure of business or fear of reopening due to COVID-19 virus infections. Mutikani (2020) reports that approximately 31.3% of the United States’ population is unemployed. Hence, the high unemployment exerts pressure on the few available jobs, but this is unlikely to escalate into inflation as employers are not under intense pressure to offer high wages due to the availability of many job seekers. Labor comprises a significant factor of production in the service sector (Mutikani, 2020). Therefore, keeping wage pressure restrained limits inflation in the service sector, as explained in the article. The unemployment rate remains relatively high despite the efforts by the federal government to slash interest rates as part of its monetary policy to support investment and consumer spending.

Relation to Economics

An inherent relationship exists between unemployment and inflation in an economy. As such, the relationship is embodied in the demand and supply of labor. According to Summers (2016), when the rate of unemployment is high, the number of people seeking jobs surpasses the available jobs. In this case, the supply of labor is remarkably higher than the demand. Since the number of people seeking jobs is high, employers are under reduced pressure to pay higher wages. Summers (2016) maintains that during severe unemployment, wages tend to stagnate, and wage inflation is, therefore, non-existent. On the other hand, during periods characterized by low unemployment rates, the demand for potential employees by companies surpasses the available prospective workers.  The employers, thus, have to pay higher wages to the workers they recruit further escalating inflation within the economy.

The relationship between unemployment and inflation is the cornerstone of monetary policies implemented by the government to stabilize the economy. The United States government focuses on stabilizing the economy and addressing inflation through policies relating to labor because wages and salaries constitute companies’ vast production input cost. In order to stabilize an economy, Summers (2016) reveals the principal objectives of the Federal Reserve System to be sustaining full-employment, guaranteeing stable prices, and regulating long-term interest rates. Indeed, the relationship between unemployment and inflation is utilized to formulate appropriate fiscal policies. The aim of policymakers, in this way, is to strike a balance between unemployment and desired levels of inflation to stabilize an economy.

Commodities’ prices are principal indicators of inflation. The prices of goods and services promptly respond to economic shocks, such as an increase in demand or pandemics. When companies incur extra costs to produce goods due to the high costs of procuring raw materials and operations, the costs are passed to consumers in the form of increased prices. Palley (2012) opines that depending on the nature of the shock, the relationship between commodity prices and inflation may be different. For instance, the passing over of costs to consumers in the form of CPI is expected to elicit changes in the aggregate price inflation to respond to the demand shocks. Since the COVID-19 pandemic affected the aggregate demands of certain commodities, the net effect is felt on the ultimate prices of commodities, subsequently increasing inflation as consumers purchase essential goods and services.


The “U.S. consumer prices push higher; high unemployment likely to keep lid on inflation,” article discusses the relationship between consumer prices, unemployment, and inflation. Inflation results from an increase in commodities’ prices due to a surge in production costs. Conversely, the high unemployment rates witnessed in the United States during the COVID-19 pandemic is unlikely to increase inflation because employers are not under pressure to offer higher wages due to the vast pool of job seekers. The commodity prices and unemployment are important economic concepts utilized by fiscal policymakers to formulate programs and incentives aimed at stabilizing an economy.




Mutikani, L. (2020). U.S. consumer prices push higher; high unemployment likely to keep lid on inflation. Reuters. Retrieved from

Palley, T. (2012). The rise and fall of export-led growth. Economic Research, 71(280), 141-161.

Summers, L. (2016). The age of secular stagnation: What it is and what to do about it. Foreign Affairs, 95(2), 2-9.