Snappy newsletters. Simple Facebook sharing. Spirited comments. Sweet features are waiting… GET THEM NOW!

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

(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.

[Images (3)]

[Quotes (1)]

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)

Sale signs abound at REI, an outdoor gear retailer in Seattle in October. (AP Photo/Elaine Thompson)

Traders work in the crude oil options pit at the New York Mercantile Exchange on Oct 24, 2008. Oil prices have fallen sharply amid weakening global demand for crude. (AP Photo/Jin Lee)

« Prev« Prev | Next »Next » Slideshow

A $20 shirt today, that same shirt in 1989 was $20. That's fairly amazing. - Charles McMillion, economist who runs MBG Information Services

« Prev« Prev | Next »Next » Slideshow

To report an error on this story, notify our editors.

More Newser Stories

Don't Hold Your Breath for New Fed Stimulus

Investors might be barking up the wrong tree

(NEWSER) - Stocks have been shooting up this week on speculation that Ben Bernanke will announce another round of quantitative easing to prop up the economy in his speech Friday at Jackson Hole. But investors had better hold their horses, Neil Irwin of the Washington Post reports, because “the appetite within the Fed for another big, splashy round of so-called QE3 is low,” and they want more evidence before making their next move. More»

Palin to Bernanke: Cease and Desist!

Alaskan slams 'quantitative easing' policy

(NEWSER) - Chinese and German finance chiefs enraged by Fed chief Ben Bernanke's plans to inject $600 billion into the economy by buying Treasury bonds have found a somewhat unlikely ally: Sarah Palin. The Alaskan slammed the "quantitative easing" policy in a speech to a trade group yesterday, using terminology foreign to her typical "just us folks" speeches. "If it doesn’t work, what do we do then? Print even more money? What’s the end game here? Where will all this money printing on an unprecedented scale take us?" she asked, according to prepared remarks obtained by National Review Online. More»

Fed to Meet as Economy Sputters

Central bank expected to tackle deflation danger

(NEWSER) - The Federal Reserve meets today to decide what medicine the wheezing American economy needs, and world markets will be keenly watching for the outcome. With no new stimulus spending from Congress likely, the central bank is the only body poised to react to signs that the recovery is running out of steam. Many economists expect the Fed will switch focus from preventing inflation to heading off deflation, the New York Times reports. More»

Gutless Fed Ignores Deflation

Bernanke should, and does, know better

(NEWSER) - Back in 2002, academic and then-lowly Fed official Ben Bernanke gave a speech explaining that we needn’t worry about falling into a deflation trap like the one that has long gripped Japan, because the Fed had all the tools to stop it. Well, now Bernanke runs the Fed, and inflation is dangerously low. What’s the Fed doing? “Debating whether maybe, possibly, it should consider trying to do something about the situation, one of these days,” gripes Paul Krugman of the New York Times . More»

'Formidable Headwinds' Hinder Recovery: Bernanke

Weak credit and labor markets mean recovery will be slow: Fed chair

(NEWSER) - Ben Bernanke painted a stark picture of the economy today, warning that "formidable headwinds" are working against the incipient recovery. Despite an unexpectedly positive jobs report, the pace of expansion is likely to remain "moderate," the Fed chair said. “Despite the general improvement in financial conditions, credit remains tight for many borrowers,” and the job market “remains weak,” Bernanke said in a speech to the Economic Club of Washington. More»

NEWS FROM OUR PARTNERS

What is Newser?

Face it: there's too much news. At Newser, we choose the most thought-provoking and entertaining stories from hundreds of US and international sources and reduce them to a headline, picture, and two paragraphs. And we do it 24/7—you can come back morning, noon, night (and in between) for something new that matters. Read less, know more.

Learn more »

Partnering with: Slate

View Newser on the mobile website

Fears of Deflation Spook Economists