Raw Materials - Inflation?
With prices of raw materials set by markets to restrict demand to the amount available, prices can and will still go up and down over time. Prices will depend on how we respond to the prices and changes in the availability of raw materials. I will argue in my book that markets for raw materials are not susceptible to inflation in the same way that labor markets and markets for finished goods and services are. The core of my argument will be that raw materials usually pass through a commodity stage when they are processed where markets are good at setting prices. This is because commodity markets can be made to closely match the conditions economists have shown make markets efficient. Prices of raw materials are much less likely to spiral up out of control.
If the supply of a critical raw material like oil is disrupted, the government may need to intervene in the market with price controls and rationing. Barring major problems, though, the prices for raw materials set by markets shouldn’t lead to inflation.
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