Worried about inflation? Cross that concern off your list, at least for the immediate quarters ahead. Inflation at the consumer level remains lame, after consumer prices fell 0.7% in December 2008, the U.S. Labor Department announced Friday, driven lower by an 8.3% plunge in energy prices and an 0.1% decline in food prices.
Even more important, for the year, consumer prices increased a minuscule 0.1% -- the consumer price index's smallest increase since 1954, when the CPI increased 0.7%.
Economists surveyed by Bloomberg News had expected consumer prices to decrease 0.9% in December 2008, and 0.2% for all of 2008.
Economist David H. Wang told BloggingStocks Friday that even though massive amounts of dollars are being added to the U.S. economy via monetary policy and various stimulus packages, investors have to remember an enormous amount of money has been destroyed as a result of the financial crisis and the U.S. recession.
"We've seen the destruction of more than $50 trillion in wealth, when you add up the stock market, bond market, and housing valuation losses, so the primary concern for the Fed remains avoiding deflation," Wang said. "The time will come when inflation will return as a concern, but we are nowhere near that stage yet. The focus has to be getting us out of this deep recession."
Core prices -- which exclude the often-volatile food and energy component -- were flat in December 2008 the second consecutive month. Also, the core rate increased just 1.8% -- its smallest increase since 2003.
Economic Analysis: As economist Wang noted, with slack demand, energy / home / stock prices flat or declining, and with the consumer in hunker-down mode, inflation is not a concern -- at least not for 2009, and probably not for most of 2010, as well. Further, the Fed, Congress, and other policy makers have to do what it takes to maintain demand in the system to prevent deflation from taking hold. Deflation, and the revenue reductions it implies, would deepen and lengthen the U.S. recession.
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Reader Comments (Page 1 of 1)
1-16-2009 @ 10:35AM
MICHAELKRIGSTEIN said...
THE NUMBERS ARE BS.
WHAT ABOUT HEALTH CARE, WHAT ABOUT PROPERTY TAXES, WHAT ABOUT COLLEGE EDUCATION,
AND AT THE STATE LEVELS, INCREASED USER FEES THAT ARE HIDDEN TAX INCREASES.
1-16-2009 @ 11:47AM
william lindblad said...
Although there is little to support a different view, I think that this will prove a bad bet.
I am not guessing, I am watching. What I see is that of the government. However, I would like to point out that they use a rather peculiar yardstick. They break this area into two different entities, with the "so-called" core being essentials/staples. You know, like in the items that are difficult to live without. The balance, and that is what they use for deflation/inflation, is comprised of what is generally "one-time" purchases. No doubt that this area is down. On the other hand, I don't see much relief in the food stores and gasoline is headed back up. The government is putting a great deal of money (that they really don't have) into TARP and other proposed legislation. This means that the printing presses keep rolling. Overseas things look no better and this is where we sell our bonds. Anything can change - possibly abruptly and if bond auctions start to go bad, inflation will be around the corner.
I, for one, expect that it is not far away - contrary to popular belief.
1-16-2009 @ 1:12PM
Iridium said...
The drop in energy prices should be discarded. Overall we are paying more for everything.
Food, living expenses, health care, taxes. It is all bad.