Consumer Prices in U.S. Decline 1%, the Most Ever
November 19th, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Is Helicopter Ben getting ready to make another drop? I think so.
From Confusion reigns: A crisis-driven global rush to dollar liquidity is not deflation:
In the crisis stage of a debt deflation, defined by Fisher and Minsky as a reduction in debt financing, credit and money market panic causes banks to stop lending and borrowing from each other, pay off existing loans to shore up their balance sheets, and build reserves against expected future losses. This creates a short term spike in demand for the currency in which the debt is denominated, in the current case dollars. To the uninitiated, this looks like monetary deflation. A strengthening currency and falling interest rates also characterizes monetary deflation. That can in time produce commodity price deflation, so the confusion is understandable. But don’t be fooled.
Via: ABC – AP:
Consumer prices plunged by the largest amount in the past 61 years in October as gasoline pump prices dropped by a record amount.
The Labor Department said Wednesday that consumer prices fell by 1 percent last month, the biggest one-month decline on records that go back to February 1947. The drop was twice as large as the 0.5 percent decline analysts expected.
In other economic news, the Commerce Department reported that construction of new homes and apartments fell by 4.5 percent in October to an annual rate of 791,000 units. That was the slowest construction pace on records going back to 1959 and underscored that housing remains caught in a severe slump.
The big drop in inflation reflected not only a huge fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in core prices in more than a quarter-century.
There were price declines for clothing, new and used cars, and airline fares. Analysts predicted further declines in the months ahead as retailers struggle to attract consumers who are being battered by rising unemployment and the weak economy.
“This report clearly reflects the crunch in discretionary consumers’ spending which is likely to persist for the foreseeable future,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
The big retreat in consumer prices represented a remarkable turnaround from just a few months ago when a relentless surge in energy prices raised concerns that inflation could get out of control.
Since that time, the economy has been jolted by the most serious financial crisis in seven decades with all the turbulence expected to push the country into a severe and prolonged recession.
The U.S. troubles have quickly spread overseas, depressing growth around the world and cutting into demand for oil and other products, a development that has resulted in sharp declines in the price of crude oil and other commodities.
Is Helicopter Ben getting ready to make another drop? I think so.
Though instead of helicopters, pretty soon he will need a fleet of B-52 bomber-planes to make his drops!