Prices Just Keep Plunging

The economy is growing, and consumers, who still seem to have plenty of cash to spend, are turning out in droves to buy houses, autos, and lots, lots more. So are stores and goods makers jacking up prices? Hardly. In these topsy-turvey times, the opposite is more often the case. One recent example: On Oct. 4, Danbury (Conn.)'s Ethan Allen Interiors Inc. slashed retail prices on entry-level furniture lines by up to 20%. "We thought it was a good time to grab market share," says CEO M. Farooq Kathwari.

A smart business move? Could be. A break for consumers? Certainly. But one that, taken with all the similar decisions being made by businesses across the economic spectrum, has troubling implications. Huge swaths of the economy are facing ever-weakening pricing power; indeed, in many sectors, prices are tumbling outright. Capital goods, apparel, furniture, long-distance telephone services, automobiles, lodging, appliances, online delivery charges, and airfares are all falling--in some cases, at double-digit rates. Says Richard A. Galanti, CFO at discount retailer Costco Wholesale Corp. (COST ): "Deflation is across the board."