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Here comes deflation

Posted by Chris Farrell on Friday, January 16, 2009

More evidence that deflation lies in our future.

The Consumer Price Index out today decreased 1.0% in December. December's level was 0.1% higher than December, 2007, according to the BLS. It's the third consecutive monthly decline. Yes, falling energy prices account for much of the decline. But so does falling demand.

The CPI minus energy and food--the so-called core-CPI--was unchanged in December. The core-CPI is up a mere 1.8% for the past 12 months, and the increase for the year came in the early part of that time period. For the past 3 months the core CPI has been negative to zero.

A combination of a global recession and deflation is really worrisome.

Comments (2)

bsimon | Respond
January 16, 2009 1:47 PM

"A combination of a global recession and deflation is really worrisome."

I'll be the dumb guy: Why?

Or maybe the question should be: shouldn't we have seen this coming during the period of astronomical growth? Is it reasonable to expect anything other than a steep drop after the crest of a tall wave?

Evelyn | Respond
January 16, 2009 8:45 PM

Reading Bloomberg.com earlier today, some of their articles are calling this "deceleration" and say that what we're experiencing now is different from "deflation." Chris, I'd love to hear your take on the difference between deceleration and deflation.

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