Wal-Mart pulls inflation debate down to earth

February 18, 2010

Fears of deflation in the United States have abated, to be replaced by worries rampant inflation could take hold. But the experience of Wal-Mart Stores, the world’s largest retailer, is a reminder that — for now — the battle on the ground is still against corrosive falling prices, not rising ones.

The retailer’s U.S. same-store sales in the quarter ending in January dropped 2 percent compared with a year earlier, largely due to price declines on food items and consumer electronics. This isn’t a new story for Wal-Mart. Deflation has dogged it for a year or more.

So much for America’s Main Street. Closer to the bailed-out halls of high finance, thoughts are turning to the dangers of inflation. The broader economy escaped the feared deflationary spiral thanks in large part to the trillions of taxpayer dollars thrown at the financial system. But some fear that the stimulus and government borrowing could eventually fuel hyperinflation.

Thomas Hoenig, president of the Kansas City Federal Reserve — who dissented at the last Federal Open Market Committee meeting when interest rates were kept near zero — said recently that runaway prices aren’t outside the realm of possibility.

That doesn’t have to be inconsistent with what Wal-Mart had to say on Thursday. The company expects price declines to ease in the coming quarters, a trend that by definition would eventually flip into price rises. But the company’s report is a reminder that its customers are still suffering from high unemployment and a depressed housing market. With consumers in poor shape and new jobs scarce, one significant driver of inflation is missing.

That’s not to say inflation won’t pick up. Global stimulus efforts are boosting the prices of commodities, for instance. And Wal-Mart’s customers will eventually have more to spend. But if the retailer can be trusted as a consumer bellwether, serious inflationary pressure could be further off than the hawks expect.


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Wow, looks like Bernanke read your column (you have a lovely smile, you should use it more often). Somewhat more seriously, the Fed is getting pounded today by options speculators crying over the discovery that rates can still go up. We will always have a super-abundance of irrational exuberencers, so the slaughter of few won’t be noticed. My bet, inflation of maybe 5% in a year or two. Obama is no Carter and Bernanke is no G William Miller. Plus, Volcker is back big time (ironic that Reagan fired him for resisting deregulation, eh).

Some time ago I concluded that free enterprise and constitutional democracy were such powerful ideas that however hard we try to screw it up, we fail. I remain convinced of that virtue of that synergy.

Posted by ARJTurgot | Report as abusive

How about Wal-mart as a contrarian indicator? Check this out:

Call it the WalMart (WMT) Index: The Wall Street Journal reports as consumer confidence inches back up, the discounter’s sales are slipping. The company’s U.S. holiday sales fell, and CEO Mike Duke predicts a tough first-quarter. Meanwhile, “Consumers may be becoming a bit less cost-conscious again,” according to one economist, and the paper reports other, higher-priced retailers are reporting improvements.

People are feeling somewhat better so they’re passing on those dreary Wal-mart outlets? Is it possible?

Posted by Gotthardbahn | Report as abusive

Please, don’t refer to Wal-Mart as “America’s Main Street”.

Every dollar spent at Wal-Mart is a Chinese Molotov Cocktail through the window of America’s Main Street.

Posted by HBC | Report as abusive