31 December 2009

Is Inflation Coming?

MSNBC: What Americans might face next: inflation
Consumers increasingly uneasy about possible loss of purchasing power

Yet beneath the weak economic backdrop keeping prices in check, economists and consumers are increasingly uneasy about the prospect of a continuous loss of purchasing power — the very definition of inflation.

"We have the most potentially inflationary policy I have ever observed in a developed country," said Alan Meltzer, a Fed historian and professor of political economy at the Carnegie Mellon Tepper School of Business in Pittsburgh.

According to widely used economic models, the way consumers perceive the prospect of future inflation has clear implications for prices themselves. Once higher costs are taken for granted, they are more easily tolerated.

Several indicators are already hinting at that possibility.

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