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Hernando Today

Consumer prices go down, but threat of inflation looms

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By TONY HOLT

Hernando Today

Published: April 15, 2009

WASHINGTON D.C. - The first annual price decrease in more than a half century could be followed by some of the most severe inflation since the Carter administration, economists have said.
The consumer price index fell 0.1 percent in March, the first such drop since 1955.
The U.S. Department of Labor announced this week that the drop in energy prices offset the dramatic price increases on tobacco.
Clothing, airfare and food prices also dropped in March.
Inventories are high at the moment, but that will change later this year, warned Olivier Garret, an economist with Casey Research out of Phoenix. Once it does, expect prices to soar, he said.
"Once the inventory goes away, workers will have to start (making) products again," Garret said. "In the next six months, inflation might come."
Many economists, like Garret, cried foul when the Federal Reserve printed more money as a way to buy bad assets from banks. He thinks the bloated balance sheets at the Federal Reserve could lead to double-digit inflation by 2010.
Earlier this week, Federal Reserve Chairman Ben Bernanke assured the public that the central bank regularly tracks inflation and it would contract the money supply once the economy improves.
For now, the recession has prevented inflation. The escalating unemployment rate has weakened demand, which has led to high retail, auto and food inventories.
Garret thinks the consumer price index could continue to drop through the summer, but the "serious consequences" could be felt as early as the fall, he said.
Florida's unemployment rate for February was at 9.4 percent. Hernando County's unemployment was at 12.7, the second-worst in the state.
The jobless figures for March will be released Friday.

Reporter Tony Holt can be reached at 352-544-5283 or wholt@hernandotoday.com.

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