The retail sales reports out today put CPI deflation in a new light. Recall that except for The Gap, Wal-Mart was the only major retailer doing markedly better in the first half of 2003 than the first half of 2002. Now consider this in light of Wal-Mart's contributions to American deflation. Wal-Mart's corporate profit strategy is, to put it succinctly, squeeze the producer. As the #1 retailer in the US and the world, Wal-Mart has amazing oligopsony powers to extort ultra-low prices from producers and passing a portion of them on to Joe and Jane American. By virtue of its very existence, Wal-Mart is a deflationary force in the world economy.
Combine that with Wal-Mart's cozy relationship with Beijing:
Wal-Mart is the biggest purchaser of China's goods, buying so much that if the Bentonville, Ark., retailer were a country, its $12 billion in imports would have made it China's eighth-largest trading partner last year, ahead of Russia and Great Britain. . . . Wal-Mart's trade with China is a one-way street, making the retailer responsible for about 10 percent of the U.S. deficit with China.Now combine that with the fact that East Asia is the primary source of import deflation in the US and you get the amazing magical Wal-Mart deflating machine, coming to a crashing economy near you?