Retailers, consumers and prices
Check Out Line: Inflation? Deflation? Conflagration?
Check 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: