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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.
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