Fears of Deflation Spook Economists

With oil below $50 and sales everywhere, economists seek solutions
By Sarah Quinn,  Newser Staff
Posted Nov 21, 2008 9:18 AM CST
The sign in front of a Seven Eleven store in Independence, Mo., shows the price of one gallon of unleaded regular gasoline to be $1.69.9 on Nov. 12, 2008.   (AP Photo/Charlie Riedel)
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(Newser) – Lower prices may sound like a good thing, but economists say sustained deflation poses a serious threat to any turnaround, the Washington Post reports. Consumer prices are tanking on everything from clothes to steel, which feeds a cycle: People stop buying as they hold out for better sales, and stores keeping cutting prices, then jobs. One economist expects the Fed to cut rates in an attempt to stem "dire circumstances, which are rapidly unfolding right at this time."

But there's no magic bullet. With prices—and profits—down, companies may not want to borrow at all. Among the hardest hit: clothing makers, whose prices are lower now than 19 years ago, and US farmers."It's hard to see any prices that haven't fallen," another economist says. The trend is unlikely to change until consumers "worried about having a job tomorrow" feel comfortable again.