Wednesday, April 15, 2009

Inflation Fears Quelled by Gap in Economic Output

The Wall Street Journal - A weak economy is keeping inflation from catching fire, but a recovery won't necessarily spark it, either.

The Bureau of Labor Statistics releases the March consumer-price index on Wednesday. Economists think CPI fell 0.1% and that "core" CPI, which excludes food and energy prices, rose 0.1%.

Such mild results belie the conflicting tectonic forces at work on prices. On the one hand are aggressive government spending and a busy Federal Reserve printing press. Both are designed to fight the recession, and both are raising inflation anxiety.

But the more powerful force is a deflationary one: The wide and growing gap between the economy's output and its potential, or what it would produce if it were making full use of its work force and production capacity. The excess supply of idle workers and drill presses means there is no kindling for an inflationary bonfire.

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