Wal-Mart pulls inflation debate down to earth
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.