Small businesses are one of the best barometers of what's going on in the economy because there are so many of them.
They are in all kinds of industries, from manufacturing to services, and the folks who lead them are very close to the day-to-day action of their companies.
That's why it's all the more important to listen to when Bill Dunkelberg, chief economist of the National Federation of Independent Business, says his members are signaling that there is little to no inflation pressure building in the U.S. economy.
It's true that in November there was a swing in the net percent of firms saying they were raising their selling prices (net of those lowering prices, that is) from minus 2 percent the month before to plus 7 percent.
But he compares that to a truly inflationary time like the 1970's when the net percent of firms raising prices was as high as 69 percent(!)
"That's inflation," Dunkelberg concludes.
What we're seeing now is probably not.
Why is this so important? Because so many Wall Street pundits, especially in the supply-side camp, are wringing their hands over the building inflationary threat and complaining that the Federal Reserve is not moving quickly enough to head it off. In fact, many of them have blasted the Fed for not seeing the handwriting on the wall, but instead focusing on the need to make sure the economy is strong enough to keep growing without further assists from tax cuts (note that President Bush did NOT rule out tax cuts next year if the economy falters).
Now it's true that if the economy gets so strong that everyone who wants a job has one (another theme of the President's), and factories have so much business they can't produce any more stuff and shortages develop, inflation could definitely be a problem. But we're not there yet. And rising energy prices, with oil well above 30 bucks a barrel, isn't always inflationary. It can be disinflationary if it means people have less money to spend on other stuff.
The consumer price report is a tough for one for the camp that says inflation is just around the corner: The November consumer price index fell 0.2 percent, the core CPI (take out food and energy) fell 0.1 percent. And the core CPI on a year-over-year basis was up just 1.1 percent -- the smallest increase since 1966!
Dunkelberg's survey shows that most of the firms that are raising prices are in the services sector, especially finance, insurance, and real estate. In the retail and wholesale sectors, in manufacturing and construction, his survey shows little inflation if any.
In the November CPI report, services prices were mostly flat, and this is important because services prices make up more than half the index. For the average family we're talking about the cost of medical care (still rising of course), legal services, education, movie tickets, airline tickets, etc.
Wall Street often accuses the Fed of fighting the "last battle," in other words, of remaining focused on the last big problem the economy faced and fighting that instead of seeing that conditions have changed and responding to new challenges.
I'm beginning to wonder if it's Wall Street fighting the old battle this time, worrying about inflation, when we are in a new world of open borders, high productivity, and scared workers where almost no one "demands" higher wages and companies who raise prices often find it tougher to sell their wares.
Kathleen Hays anchors CNN Money Morning and The FlipSide, airing Monday to Friday on CNNfn. As part of CNN's Business News team, she is also a regular contributor to Lou Dobbs Tonight.
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