| CPI Drop Doesn't Point to Deflation |
Deflation Still Doesn't Appear to Be a Major Problem The Consumer Price Index (CPI) fell for the fifth straight month last month and showed inflation at its lowest rate since 1954. However, these numbers don't point toward deflation. However, this is still a debate and if you want to see the counter argument about deflation check out John Jagerson's article and video here. When the Bureau of Labor Statistics reports its monthly CPI numbers, it reports CPI numbers and Core CPI Numbers, and each number tells a dramatically different story.  Consumer Price Index for All Urban Consumers (CPI-U)—The Consumer Price Index for All Urban Consumers (CPI-U) is the broadest measure of consumer inflation used by the government. Basically, it tells us how much prices on nearly almost everything a consumer might buy are rising or falling. Core Consumer Price Index (Core CPI)—The Core Consumer Price Index (Core CPI) is a narrower measure of consumer inflation. Core CPI looks at everything the CPI-U looks at except for the price of food and energy. Now, if you're looking at this and thinking to yourself..."Wait a minute. Aren't the prices of food and energy pretty important when you're looking at what typically consumers are spending their money on?"...you're not alone. Food and energy prices are extremely important. Each one of these numbers also has a dramatically different affect on the value of the U.S. dollar (USD). Check out Forex Trading and CPI. What We Learned from This Report The numbers we saw in this CPI report tell us something extremely important: deflation has not yet become a major problem. Here's what we learned from the report: "Declining energy prices, particularly for gasoline, again drove most of the decline. The energy index declined 8.3 percent in December. Within energy, the gasoline index fell 17.2 percent and accounted for almost 90 percent of the decrease in the all items index. The index for household energy declined 0.7 percent. Excluding energy, the index was virtually unchanged for the third straight month. The food index declined 0.1 percent in December, the first decrease since April 2006, as many meat, dairy, fruit, and vegetable indexes decreased. The index for all items excluding food and energy was virtually unchanged in December." In other words, the CPI dropped because food and energy prices—which had risen to unrealistic prices during the commodity bubble of the summer of 2008—dropped, not because prices in general dropped. At this point, it appears prices are just re-setting, not deflating.
Comments deemed inappropriate will be removed
3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved." |
| Learning Markets Partners More Partners | Become a Partner |
 |  |  |  |  |
 |
| Learn to Invest | Reviews of Stock Brokers | Stock Picks | Technical Analysis | Broker News | Investor Education | What to Invest In | Live Market Analysis | Should I Invest? |
