The Wal-Mart Effect on Inflation
May 13, 2002
One reason the Federal Reserve is less concerned about inflation than the European Central Bank, say economists at UBS Warburg, is the deflationary impact of America's more competitive retail environment.
They recently evaluated the impact of Wal-Mart Stores Inc. on grocery prices in locations where its Supercenter stores have been undercutting traditional supermarket chains.
- The survey found that rival's prices for grocery items were as such as 27 percent to 39 percent higher than Wal-Mart's -- with the average discount offered by Wal-Mart stores for a comparable basket of goods running about 20 percent.
- Also, Wal-Mart's presence in a market forced down rival stores' prices by some 13 percent.
- This spells less pressure on U.S. household budgets than in Europe -- where grocery competition is less intense.
And, of course, that puts less pressure on the Fed to step on the monetary brakes.
Source: Gene Koretz, "Economic Trends: Wal-Mart vs. Inflation," Business Week, May 13, 2002.
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