View Full Version : Inflation drops bigger-than-expected 1.7 percent

12-16-2008, 10:19 AM
Inflation drops bigger-than-expected 1.7 percent

WASHINGTON Consumer prices in November plunged by the largest amount on records going back 61 years as energy costs posted nearly double the decline of the previous month.

The Labor Department reported Tuesday that consumer prices fell 1.7 percent in November, surpassing the previous record decline of 1 percent set in October. The drop was the largest one-month decline dating to February 1947.

The huge decreases reflect the severe recession gripping the country and raise the pressure for the Federal Reserve to act decisively to guard against a debilitating bout of deflation.

In other economic news, the Commerce Department reported that construction of new homes fell in November by 18.9 percent, the biggest drop in a quarter-century. The steep decline pushed construction down to a seasonally adjusted annual rate of 625,000 homes, the slowest pace on records that go back to 1959.

The Fed wraps up a two-day meeting Tuesday. Economists expect the central bank to cut the federal funds rate, already at a low of 1 percent, by another half-point in an effort to keep the recession from worsening.

Only a few months ago, some anticipated that the Fed would start raising interest rates to battle a prolonged surge in energy costs. But since September, the Fed's focus has switched to trying to prevent the worst financial crisis since the Great Depression from pushing the country into a deeper recession.

The turnaround in inflation reflects a huge drop in energy costs. Energy prices fell by a record 17 percent in November, nearly double the 8.6 percent decline in October. Both declines represented record drops.

Food costs posted a modest 0.2 percent rise in November, the smallest increase in eight months.

Core inflation, excluding food and energy, showed no increase at all in November following a 0.1 percent drop in October.


12-16-2008, 10:56 AM
It's not quite that "Inflation drops", but rather that prices dropped and so "Deflation increased".

Anyway, this deflation is probably over. The price of oil and gasoline has started to creep up over the last week. I'd bet that the deflationary period is now over and the December reading will not have deflation. In the last few days, my local walmart raised gasoline prices from $1.37 to $1.49.

A.T. Hagan
12-16-2008, 11:10 AM
I thought energy prices were not considered when determining inflation amounts?


12-16-2008, 11:35 AM
I thought energy prices were not considered when determining inflation amounts?

The CPI includes energy prices. This is what fell 1.7% in one month, which is an annual pace of 22% deflation. The fastest ever recorded.

The "core-CPI" doesn't include energy prices and that fell 0% last month.