The Week Ahead: Inflation report could reveal risky slowdown

May 10, 2014 

There is a price perception problem even if it doesn't seem like a problem. Prices aren't going down, but they aren't going up by all that much either. And that presents a challenge.

A general trend of higher prices got a bad rap in the 1970s and deservedly so. Inflation can quickly take hold of an economy and cause ruin. Just look at Argentina, or worse, Venezuela. Out-of-control inflation drives economic activity underground or hollows it out. Since 1977, keeping prices steady has been one of the twin goals of the Federal Reserve. Usually this has meant fighting any economic urge for prices to spiral upward.

A little inflation is good. It can serve as a motivator to get consumers and corporations to buy now before prices increase. But generally speaking, prices haven't been increasing enough to get scared and scarred shoppers to plunk down big wades of cash (or credit). Instead, overall inflation in March was just 1.5 percent in the past year. Tame but potentially troubling. On Thursday, the April data will be released. Despite higher energy prices, look for the general trend to be low, and possibly slowing, price increases.

Sounds like a good time to be a shopper, right? Yes, but waning inflation also threatens those spenders. Why buy now if it will be the same price -- or lower -- tomorrow?

Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter @HudsonsView.

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