Right now we run as much risk of deflation as inflation. People are losing their jobs, which means they have to reduce spending, which means there is less demand, which reduces prices, which reduces the need for production, which lays off workers - you get the idea. With credit tight but rates low, housing prices diving, and big-ticket items sitting for months without selling, I'd say inflation overall is less risk at this time than deflation.
Prices at Costco are largely a result of last summer's corn and grain hikes as well as the tainted peanut production. However, if food costs go up, people will spend less, etc. - It is possible to have rising costs for some items in a deflationary cycle.
Deflation is not the opposite of inflation, and economic models are not set in stone. The stagflation of the late 70's was considered impossible before it happened.
Food supplies may continue to be an increasing cost. Housing, big ticket items, and labor will likely be cheaper. In the balance, the economy will probably see low inflation figures throughout 2009.

Permalink | Report