Poor Pricing Power Poses Problems for the U.S.

Bogoslaw, D. (2010). Poor pricing power poses problems for the U.S. Retrieved April 21, 2010 from: http://www.businessweek.com/investor/content/apr2010/pi20100420_625166.htm

This article is published on the BusinessWeek.com Web site and discusses some of the problems that U.S. businesses could encounter, including deflation concerns, especially if the economy falters again. Normally when the Fed pumps a lot of liquidly into the economy and keeps interest rates low, economist worry more about inflation. However, right now, many are concerned about the opposite problem, deflation. This could occur if companies start lowering prices to lure customers into buying again, but if deflation sets in, it will likely lead to companies needing to cut costs and employees as a result, further driving consumers away. Deflation feeds upon itself because when consumers believe that prices will be going down in the future, that put off today’s purchases so they can save on the same purchase later. When businesses are forced to lower prices, they have to cut costs elsewhere and the vicious cycle continues and can devastate an already weak economy. Additionally, as stated by the author, deflation is most dangerous because it boost the value of the dollar, increasing the cost of repaying debt. He says right now we are in a period of disinflation, which is a decline in the rate of inflation and increases the possibility of actual deflation occurring. While there is some optimism for growth in the economy, the author states that because of the continuing unemployment situation, which many believe will not improve greatly for some time to come; there is plenty of skepticism about the economy as well. This is an important subject for manager to understand because deflation and inflation can throw the economy into chaos and it is important for managers to monitor the economy so can be aware of what is going on and how it can affect them.