Analysis: Low inflation mystery could be a hitch in Fed's plans

Fri Aug 23, 2013 1:17am EDT
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By Jason Lange

WASHINGTON (Reuters) - There are many signs the United States is emerging from a quagmire of sluggish economic growth. The pace of inflation is not one of them.

America's jobless rate has fallen nearly a percentage point over the last year, home construction has accelerated and household debt burdens appear to be their lightest in a decade.

Companies, however, are struggling to raise prices, and many measures of inflation have slowed dramatically over the last year. This is the opposite of what often happens when an economy gathers steam.

Experts are divided over why inflation has cooled, but it could be a sign of lasting damage dealt to the economy by the 2007-09 recession. If so, it could get in the way of the Federal Reserve's plans to end a bond-buying stimulus program by the middle of next year.

At Perfect Printing in Moorestown, New Jersey, managers are worried over rising costs for ink, which the family-owned company uses to make marketing material for clients.

The problem is that the pace of business is too weak for the printing company to pass higher costs along to customers. Sales plunged in 2008, and it has taken five years just to get back to pre-recession levels. Staff have tried to raise prices, but have backed off after clients warned they could take their business elsewhere.

"Every time we try to push through a price increase, this becomes an issue," said Perfect Printing President Joe Olivo.


The sun rises to the east of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst