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Deflationary pressures increase

Posted by Chris Farrell on Friday, December 12, 2008

The producer price index (PPI) for finished goods fell by 2.2% in November, according to the Labor Department. That follows the record drop of 2.8% in October. The PPI is up a mere 0.4% from a year ago. Also on the price front, the Labor Department reported yesterday a record drop in import prices for November.

Prices aren't falling for good reasons, such as technological and organizational efficincies. No, demand is falling sharply. The recession here and abroad is getting worse, and the risk that deflationary pressures are taking root in the global economy rising.

The Fed will cut its benchmark interest rate sharply when it meets next week.

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