By Mark Huffman
ConsumerAffairs.Com
June 17, 2010
Since the economic meltdown of 2008 and the Federal Reserve's response of printing more money, economists have issued competing warnings. Inflation is a threat, some said. Deflation is a bigger threat, others said.
For now, prices don't appear to be going up. The U.S. Labor Department reports the Consumer Price Index (CPI), a measure of inflation at the retail level, fell in May for a third straight month. The Index was down 0.2 percent, following a 0.1 percent decline in April.
A closer look at the numbers shows it was food and energy costs that helped keep retail prices under control. Gasoline prices have been falling over the last six weeks as the European debt catastrophe pulled oil prices down.
Food prices in late winter and early spring spiked because of the disruption caused by the Chilean earthquake. Last month food prices remained stable. Fruit and vegetable prices dropped 01.1 percent while meat, dairy and cereals went up by about the same amount.
However, if food and energy costs are stripped out of the inflation index, prices actually rose 0.9 percent from May of 2009. Food costs were flat in May. It was plunging gasoline prices -- falling by 5.2 percent -- that pulled the index down.
Consumers, meanwhile, paid only slightly more last month for a place to live. Rents were flat. So, in fact, was the cost of buying a home. Only the cost of staying in a hotel went up, jumping 02.5 percent. Even increases in medical costs were minimal.
"Critically, for goods that people buy all the time, not the once every couple of years purchases such as vehicles and computers, prices are flat to down," said Joel Naroff, chief economist for Naroff Economic Advisors, in Holland, Pa. "That is a positive factor right now as it will mean that spending power is improving and we need households to buy a little more if we are to get this economy moving faster."
Where's the inflation?
So, why haven't we seen the rampant inflation from the Fed's printing presses? Perhaps because the economy is still very weak.
Inflation is caused by too much money chasing too few goods and services. All that money the Fed's printed isn't being spent by consumers. It's sitting on banks' balance sheets. But that doesn't mean inflation could ignite if the economy starts to rebound.
"There is an old saying that if the Fed waits until it sees the whites of inflation's eyes, it has waited too long," Naroff said. "Essentially that means the Fed has to get and stay ahead of inflation pressures."
With companies lacking any kind of ability to raise prices, inflation doesn't appear to be much of a consumer for consumers. For now.
