Amazon’s plans to cut prices at Whole Foods is great news for shoppers, but not so much for Federal Reserve officials wondering whether they’ll ever hit their 2 percent inflation target.
The Fed should not be in the business of targeting price inflation. Prices adjust in accordance with consumer demand and producer’s supply. In order to increase profits, Amazon/Whole Foods anticipates that it should encourage more consumption of its goods by lowering prices. And shoppers respond to this by either buying more food at Whole Foods or buying the same amount of food and then having a surplus leftover. This surplus will allow them to consume more elsewhere or else save and invest.
There is nothing at all wrong with this, in fact, it is the natural machinations of the market at work.