Fear of Deflation Is Overrated
For people who always like to have something to worry about, here's the trendy new worry for 1998. Price deflation. What would happen to businesses, jobs and the stock market if average consumer prices dropped?</br></br>The answer: Things could be just fine. Obsessive brooders should exercise their worry beads over something else.</br></br>The consumer price index (CPI) falls when enough businesses cut the prices on things they sell, or when prices decline sharply for a couple of major items within the index.</br></br>The 12-month inflation rate is running at 1.8 percent. Prices rose modestly for most goods and services, but energy and automobiles showed declines.</br></br>This kind of selective price cutting goes on all the time without hurting the economy, says Irwin Kellner, president of Kellner Economic Advisers in Port Washington, N.Y.