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Can Wal-Mart cause deflation?
A Wal-Mart store in in Oakland, Calif.
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Kai Ryssdal: You can add another name to the Wal-Mart unintended victim list. Gamestop. Shares fell eight-and-a-quarter percent today after Wal-Mart said it's cutting video game prices by $10. We've seen this before. First books, then DVDs, now video games. You know what the government calls it when prices go down across the economy? Deflation. Marketplace's Jeremy Hobson looks into whether that's what's at play here.
JEREMY HOBSON: Let's start by asking a Wall Street economist: Is this video game business an example of Wal-Mart causing deflation?
CHRIS LOW: No, but they certainly can be a conduit of deflation.
Chris Low is chief economist at FTN Financial. He says Wal-Mart is so big it can even affect the price of one of the main things the Fed watches to gauge the level of inflation.
LOW: During the peak in oil prices a couple of years ago, when oil got up to $170 a barrel, Wal-Mart decided to sell gasoline below market prices to bring people into the stores. It was enough of an impact that the national average retail price of gasoline fell.
But was that Wal-Mart causing deflation or just reacting to price-conscious consumers?
Harvard Economist Kenneth Rogoff says it's the latter.
KENNETH ROGOFF: If we have deflation, meaning a generalized fall in prices, it certainly won't be due to the actions of any one player.
Plus Wal-Mart can't keep prices below market levels for long.
That's according to Charles Fishman, author of "The Wal-Mart Effect."
CHARLES FISHMAN: This is what Wal-Mart does. They lower prices. They're not saying we're slashing the prices of video games forever anymore than it turned out they were slashing the price of books forever.
So Fed Chairman Ben Bernanke doesn't need to pay too much attention to what Wal-Mart's up to. Unless, Fishman says, he's in the market for a new lawnmower.
FISHMAN: The Fed remains a bigger deal than Wal-Mart, the federal deficit remains a bigger deal than Wal-Mart, and the two-thirds of the stimulus spending that hasn't actually hit the economy yet, remains a bigger deal.
Although, just barely. The remaining stimulus money is around $550 billion. Wal-Mart sales for last year? Almost $400 billion.
In New York, I'm Jeremy Hobson for Marketplace.
About the author
Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead. Follow Jeremy on Twitter @jeremyhobson
I may not be an expert on financial statistics and business, but as a employee and reluctant shopper of this company I can say Walmart puts good business out of business by their low price advertisements. When you decide to purchase their products it is a complete dissapointment. Because of the recession we almost have no choice to accept this product because of our desperation of saving money. My point is Walmart does not deliver their promises for their customers as well as their employees. Many employees in my workplace are unprofessional and have no business ethic which is also a result of pathetic products. Its hopeless cause it seems they are almost unstoppable. Are the american people going to continue to accept this as citizens or will we finally demand a product that's exemplifies the product we declined to save money, we also know they can afford to make the products to our satisfaction. But again this seems only but a wish not a fact.
Thank you for sharing this story. As a college senior, during the last semi-deflationary period, I saw quite a few mentions about how Wal-Mart is causing deflation. To challenge this, I researched and wrote a paper about the phenomenon and created a sample CPI and tracked the cost of goods at a local store, comparing it to the CPI over the short term course of my study. Turns out, Wal-Mart beat the CPI (although this was a limited basket, maybe 30 items).
I consider it a travesty that the annual sales for a super-corporation bounded only by anti-trust law and the laws of economics is pocket change for our government of Constitutionally limited and enumerated powers. But given the current state of affairs, with government spending an ever-increasing monster and nobody in power willing to take up the reins of fiscal discipline, I don't think deflation is likely anytime soon.
There's a deeper question here: with Wal-Mart's relentless downward price pressure on their suppliers, which is how they maintain their price advantage, more and more US blue-collar jobs are pushed offshore.
While they help their core customers afford to buy in their stores by keeping prices low, they simultaneously pull the rug out from under those customers' earning power.
That's not deflation as defined by an economist, but it's ultimate effect is to deflate the purchasing power of many US consumers. What's the endgame here?
