Question

Assume the price of corn has increased. Economists argue that this will affect inflation. How can that be? Why is this one price so important as to affect the entire CPI?

Answer 1

This is because corn is used in the production of ethanol. We know that ethanol is used as a fuel and as a substitute to gasoline in most of the commercial vehicles. There are many other purposes of ethanol as well. This indicates that if the price of the corn crop is increased, the production cost of ethanol is likely to increase which will drive up the cost of transportation. Once the transportation cost is increased, the price of most of the goods and services will automatically increase. in this manner it is likely to affect the consumer price index as well.