Should we be worried about inflation?
Former Federal Reserve Chairman Alan Greenspan is warning that inflation could threaten economic recovery. And he's not the only one raising that concern. Amy Scott reports on how worried we should be.
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KAI RYSSDAL: Alan Greenspan may not be the chairman of the Federal Reserve anymore. But he sure can make news when he wants to. In a column in the Financial Times newspaper today, the former Fed chairman warned inflation could threaten any economic recovery that's out there. That at a time when consumer prices are rising at a rate of about one-tenth of 1 percent a month, which is to say they're not really rising at all. But Greenspan isn't the only one waving the inflation flag so we asked Marketplace's Amy Scott to find out how worried the rest of us ought to be.
Amy Scott: So should we be worried about inflation?
Barry Bosworth: I think we should be so lucky.
Barry Bosworth is an economist at the Brookings Institution. He says we'd be lucky because rising prices are usually a byproduct of a growing economy. But with unemployment marching toward 10 percent and the overall economy still shrinking, Bosworth says we're not there yet.
Bosworth: If we could just return to an economy where everybody had jobs and we were worried about inflation, we know how to deal with inflation.
The Fed can fight inflation by raising interest rates. But Bosworth says, if anything, deflation is still a concern, that is falling prices. Of course, not all prices are flat or falling as anyone traveling this summer knows.
Cary Leahey is an economist with consulting firm Decision Economics. He says recovering demand is pushing up the price of oil and other commodities.
Cary Leahey: Even though most prices in the aggregate are weak, the fact that energy prices have moved up so much will probably push the overall inflation rate, which had been negative -- meaning less than zero -- it will probably turn positive in the next three to six months.
Another factor could push inflation into dangerous territory down the road. To avert an economic crisis, the Fed has been flooding the economy with money. When too much money chases too few goods, producers can charge more.
Leahey says that could even lead to hyper-inflation of as much as 8 to 10 percent. But he says the Fed would step in long before that happened.
In New York, I'm Amy Scott for Marketplace.
Comments
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From Winter Park, FL, 06/27/2009
Hyperinflation is not 8-10%. It's 8-10% a month, or worse. Inflation will be the only recourse for a desperate government which has spent us into unsustainable debt.
From TX, 06/26/2009
I'm more concern with the weakness of our greenback. Since we import so much of what we used in our lives. A weak dollar will send prices higher regardless of demand or money supply, since it'll cost more to import. Unless the companies are willing absorb the cost of a weak currency, I don't see how prices can be contained.
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