Fallout: The Financial Crisis

Should we be worried about inflation?

Amy Scott Jun 26, 2009
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Fallout: The Financial Crisis

Should we be worried about inflation?

Amy Scott Jun 26, 2009
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TEXT OF STORY

KAI RYSSDAL: Alan Greenspan may not be the chairman of the Federal Reserve anymore. But he sure can make news when he wants to. In a column in the Financial Times newspaper today, the former Fed chairman warned inflation could threaten any economic recovery that’s out there. That at a time when consumer prices are rising at a rate of about one-tenth of 1 percent a month, which is to say they’re not really rising at all. But Greenspan isn’t the only one waving the inflation flag so we asked Marketplace’s Amy Scott to find out how worried the rest of us ought to be.


Amy Scott: So should we be worried about inflation?

Barry Bosworth: I think we should be so lucky.

Barry Bosworth is an economist at the Brookings Institution. He says we’d be lucky because rising prices are usually a byproduct of a growing economy. But with unemployment marching toward 10 percent and the overall economy still shrinking, Bosworth says we’re not there yet.

Bosworth: If we could just return to an economy where everybody had jobs and we were worried about inflation, we know how to deal with inflation.

The Fed can fight inflation by raising interest rates. But Bosworth says, if anything, deflation is still a concern, that is falling prices. Of course, not all prices are flat or falling as anyone traveling this summer knows.

Cary Leahey is an economist with consulting firm Decision Economics. He says recovering demand is pushing up the price of oil and other commodities.

Cary Leahey: Even though most prices in the aggregate are weak, the fact that energy prices have moved up so much will probably push the overall inflation rate, which had been negative — meaning less than zero — it will probably turn positive in the next three to six months.

Another factor could push inflation into dangerous territory down the road. To avert an economic crisis, the Fed has been flooding the economy with money. When too much money chases too few goods, producers can charge more.

Leahey says that could even lead to hyper-inflation of as much as 8 to 10 percent. But he says the Fed would step in long before that happened.

In New York, I’m Amy Scott for Marketplace.

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