Shop Talk

Retailers, consumers and prices

Check Out Line: Inflation? Deflation? Conflagration?

August 11, 2010

PHILIPPINES-ECONOMY/CONSUMPTIONCheck out the economic cross-currents swirling around U.S. consumers, retailers and manufacturers.
 
So, what’s it going to be? Inflation, deflation or just a big squeeze all around?
 
The U.S. economy is still suffering from high unemployment and sluggish consumer spending and sentiment. On Tuesday, the Fed said it would buy more government debt in the face of the weakening recovery.
 
“The pace of recovery in output and employment has slowed in recent months,” the Fed said after a one-day policy meeting. 
 
There is some concern about deflation, especially in bigger ticket items, with prices falling and cash-strapped consumers holding off on purchases expecting further price cuts, which just leads to more falling prices.
 
“Just when it looks like buyers were starting to come back, now they have another reason to wait,” Robert Yerex, chief economist at workforce management company Kronos, said. He pegs the chances of deflation in the United States at as much as 20 percent.
 
But there are also conditions that point to inflation for consumers instead, including rising costs for commodities like wheat, which may be starting to drive up the price of some products on grocery store shelves.
 
An analysis by J.P. Morgan showed  that the price of a 31-item basket of goods at Wal-Mart rose 5.8 percent in July from June. Analysts think Wal-Mart may be pulling back from the aggressive price cuts it made earlier this year and that could lead to other grocers raising prices.
 
Down the road, rising costs in for cotton, freight and for labor in China could also push prices up for clothes, analysts said.
 
But a key question is whether consumers, who are used to receiving big discounts, willing to pay more in a weak economy. 
 
The other question is, do consumers really watch closely enough to know when they are paying more in time to push back? Or can prices go up as long as retailers are willing to put the 50 percent off sign out there when products don’t sell?
 
Also in the basket: 

Macy’s raises forecast as profit beats Street

Grocer Metro profit rises on operations, sales

Maidenform Q2 beats Street
 

Nestle and CSM caution over higher input costs

 (Photo: Reuters)

Comments

Deflation in the things we (used to) want, inflation in the things we (still) need.

By 2018 or so there will be blood in the streets.

Posted by JackMack | Report as abusive
 

Deflation – just another bogeyman with which ill-informed journalists and the media generally can frighten the public. ‘If it bleeds, it leads’.

How an economy like the US, with a rising population, youngish on average with one of the highest birthrates in the West, plenty of immigrants – both legal and illegal – arriving constantly and a government intent on stoking inflation with loads of printed and borrowed money, can possibly slip into deflation is beyond me.

Always remember, the deflation example constantly used by the media, Japan, is an aging country with a shockingly low birthrate, no immigration at all and with its population decreasing in actual numbers. The analogy is strained and, in my opinion, irrelevant.

Posted by Gotthardbahn | Report as abusive
 

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