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January 26, 2009

No worries about inflation

Earlier this year, inflation was perhaps the number one economic concern. Now, inflation worries have faded. Why? And does this mean inflation is off our radar screen for the near future? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Lower inflation is one of the beneficial results of a recession. It's probably one of the only beneficial results. We typically see inflation subside during a recession for the simple reason people aren't buying as much, so in economics lingo, demand is down. Supply is the same. That puts downward pressure on prices. Indeed, some economists see inflation averaging in 2009 only a little over 1 percent for the entire year, whereas earlier in 2008, we were worried about inflation perhaps averaging 6 percent. Again, a big part of this is due to lower energy prices, lower commodity prices, but typically it's a result of a recession. Now, if you take out energy prices, inflation is a wee bit higher. It's averaging around 2 percent, and that's actually been fairly consistent for the past several years. Now there is one big worry looming down the future that economists are pointing to, and that is that all this money that the federal government is creating to try to stem the recession may come back to haunt us two or three years down the road in terms of much higher inflation. But right now we have low inflation, and hopefully we can enjoy it."

Posted by Dave at January 26, 2009 08:00 AM