Deflation Isn't Happening
November 5, 1998
But those who doubt that we are in for a bout of deflation point to rising prices in other areas:
- Producer prices -- excluding energy and food -- are rising about 1 percent a year.
- Consumer prices are increasing about 2 percent a year.
- Wages and salaries have been rising about 4 percent a year -- which does not suggest an imminent decline in prices for goods and services, since labor costs typically account for two-thirds of their prices.
- Prices can fall in an atmosphere of strong productivity growth, but productivity is now rising by less than 2 percent a year.
So to many economists the talk of possible deflation is premature, to say the least.
The last time the U.S. experienced severe deflation was during the Great Depression. Nobody sees today's Federal Reserve making the same disastrous mistakes it made then.
Source: Michael M. Weinstein, "Deflation Is Frightening, But Toothless, For 90's America," New York Times, November 5, 1998.
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