With all the after-Christmas sales and steep discounts up to 75 percent, it might be hard to imagine that inflation looms on the horizon. But some economists, bond traders and business executives think it might.
The reason? The Federal Reserve has held interest rates at zero for about a year now, in an effort to breath life back into a comatose economy. And in fact, the economy does seem to be doing a little better.
The problem, say the skeptics, is that it can't last. Eventually the Fed's highly inflationary policy - printing more and more money - will cause prices to start going up.
For now, however, consumers don't see it. The Conference Board's latest Consumer Confidence Index shows consumers are feeling better about the immediate future, even though they continue to worry about jobs.
It's that stubborn unemployment rate that has prompted the Fed to keep rates low, allowing banks to borrow for next to nothing and lend money at a higher rate. While that has helped banks regain their financial health, it hasn't done a lot for consumers. And some experts are worried consumers will pay an even bigger prices if inflation takes off in 2010.
Wall Street rally
Since late March the stock market has surged higher while the rest of the economy struggled. Inflation hawks attribute the bull market to the Fed's monetary policy. Investors can borrow money at low rates to buy stocks. In a way, they say, higher stocks prices are the result of inflation.
The price of gold has also surged in the second half of the year, with many investors buying the precious metal as a hedge against inflation. However, gold prices in currencies other than the U.S. dollar haven't gone up as much.
The price of oil has also remained relatively high in the second half of 2009, even though demand is weak and U.S. supplies of both oil and refined gasoline are near record levels. Gasoline prices are ending 2009 near their high for the year.
Then there's the so-called "yield curve," the gap between the government's two-year and 10-year Treasury bonds. A wide spread is supposed to portend strong growth in the economy, and indeed, the gap is wide, at a record 287 basis points.
But inflation hawks say that could mean something else. Bond traders are convinced inflation is in the future, they say, and are demanding much higher rates for a 10-year note than a two-year note.
And the government is still printing money. Reuters reports the Treasury Department is expected to issue as much as $2 trillion U.S. Government debt in 2010, which some say could depress the dollar and send prices spiking higher.
Hyper-inflation
A group called the National Inflation Association says 2009 was what it calls a "brief period of euphoria" before a rapid increase in the prices of food, energy, clothes and other necessities. The group paints a frightening picture of a "hyper-inflation" the U.S. has never experienced.
"Within the next two to three years it is likely that the cost for the average American to fill their refrigerator with food for the month, will rise to a level that is higher than their average monthly mortgage payment," the group warned in a statement. "We could also see the average American need to work one full month of the year, just to afford their annual fuel cost to commute to work."
The Fed, of course, has no intention of letting that happen, and will likely start raising interest rates at the first sign that prices are getting out of control. But the skeptics are not that reassured. They say rising prices are not a matter of if, but when.
