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Why is the consumer price index stable during a period of high government debt?
In the 70s, the CPI inflated by 15%, liquidity by the fed caused inflation to escalate. In 2009, the CPI remains stable because oil prices have fallen.
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Guam's chief economist explained it in an article in a simple way I could actually understand:
"Prices are reflective of the demand for goods. If people are fearful of their future, their economic well-being and their job security, they tend to spend less. So if the spending goes down, prices will follow."
So the stability appears to be a temporary reaction to people spending less and businesses adjusting prices accordingly. However, this first phase of our dealing with the economic crisis is nearing an end according to the Financial Forecast Center -- they predict the CPI to start rising again this month and to continue to rise throughout the year...
"Prices are reflective of the demand for goods. If people are fearful of their future, their economic well-being and their job security, they tend to spend less. So if the spending goes down, prices will follow."
So the stability appears to be a temporary reaction to people spending less and businesses adjusting prices accordingly. However, this first phase of our dealing with the economic crisis is nearing an end according to the Financial Forecast Center -- they predict the CPI to start rising again this month and to continue to rise throughout the year...
source(s):
http://guam.mvarietynews.com/index.php?option=com_content&view=article&...
http://www.forecasts.org/cpi.htm
http://guam.mvarietynews.com/index.php?option=com_content&view=article&...
http://www.forecasts.org/cpi.htm
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