Economy’s Excess Capacity Reins In Prices
Latest Data Give Fed Room to Maintain Rock-Bottom Interest Rates; Initial Jobless Claims Decline for Third Straight Week
The vast economic slack left over from the recession continues to keep inflation in check, leaving companies and workers with little leeway to ask for price or wage increases.
Consumer prices were flat in February—and even with volatile food and energy removed from the equation, the needle barely moved: Prices ticked up a scant 0.1%, the Labor Department said Thursday. Over the past year, prices have increased 2.1%, or 1.3% omitting food and energy, the smallest rise in six years.
Behind these numbers stands a huge excess—of workers, factory space and homes. Until more of the nation’s productive capacity comes into use and starts pulling workers off the unemployment line, the sellers of everything from golf clubs to paving machines have little ability to raise prices. The problem is exacerbated by continued tightness in credit, which makes it harder to rev up economic growth through bank lending to soak up the economy’s lingering slack.
“Everybody’s talking about inflation, but we’re not seeing anything yet, at least not in any major or consistent way,” said Dyke Messinger, chief executive of Power Curbers Inc. of Salisbury, N.C., which makes equipment that lays curbs and sidewalks. Power Curbers’ business is off some 65% from pre-recession levels, Mr. Messinger said. The firm hasn’t raised prices in three years and still relies on discounting to make sales.
….read more HERE