Economic Recovery: Is Inflation the Answer?

By Martha Dalton

Atlanta – Atlanta's unemployment rate continues to rise, along with the nation's, creating a grim economic picture. The Federal Reserve says that higher prices may help pull the country out of recession. WABE's Martha Dalton reports.

The Fed says if prices for goods and services start rising, it could start a chain reaction that will lead to job creation. Tom Smith, a labor economist at Emory's Goizueta Business School, agrees.
"In order to make you buy something today, you have to believe it's going to be more expensive a week from now. That's why you buy it today."
Smith says what the Fed wants to avoid is deflation - or sharply dropping prices.
"Deflationary pressures cause people to stop spending. You stop spending, you stop hiring or you fire even more people, which creates an even worse problem."
Smith says economic recovery will depend on policies that encourage spending, such as fiscal stimulus, tax cuts and rebates. Otherwise, he says, the country could slip into a second recession, which will be even harder to reverse than the first one.