Mutual Funds Experts

Given the big drop in energy prices, it is not surprising that the cost of living fell in November.  However, the size of the decrease in the Consumer Price Index (CPI) was a bit startling as this release from the Bureau of Labor Statistics indicates [emphasis added]:

Consumer Price Index — November 2008 (Bureau of Labor Statistics, December 16, 2008)

On a seasonally adjusted basis, the CPI-U [CPI for all urban residents] decreased 1.7 percent in November, the second consecutive record decrease. For the 12 month period ending in November the CPI was up 1.1 percent, compared to 5.6 percent for the twelve months ending July of this year. Falling energy prices, particularly gasoline, drove the decline in the overall index…

…Excluding food and energy, the CPI was virtually unchanged in November and is up 2.0 percent since November 2007. Continuing declines in the indexes for new and used motor vehicles, lodging away from home, airline fares and some technology-related commodities offset small increases in a variety of other service and commodity items…

In a year of many surprises — mostly unwelcome surprises — this is a mixed blessing.  I’m happy that inflation is falling.  However, the underlying cause is not that we have our financial house in order.  In fact, it’s quite the opposite.  The circumstances are that the economy is suffering and falling prices are symptom of the economic malaise.  It does show how quickly things can turn around though.  As of July, 2008, year-over-year inflation was up 5.6%.  Fast forward to November, 2008 and year-over-year inflation is up only 1.1%.  Wow.

See also Inflation versus Deflation.

For much more on inflation, I recommend our series:

Part One:  Does the Government Understate Inflation?

Part Two: Does the Government Understate Inflation? — Bill Gross Says Yes

Part Three: Does the Government Understate Inflation? — Don Boudroux & Russell Roberts Say No

Bookmark It

Hide Sites