Deflation comes to America

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Deflation comes to America  On Thursday, the consumer price index showed that prices fell 0.1% in January compared to last year.  And so for the first time since October 2009, deflation is back in America.  On a "core" basis, which strips out the more volatile costs of food and gas, prices actually rose 1.6% over last year, the same annual change seen in December. And what's more, the decline in prices in January is almost all about gas.  In its report, the Bureau of Labor Statistics said the energy index fell 9.7% in January as gasoline prices decline 18.7%, the sharpest in a series of seven straight monthly declines for gas prices.  And because of this, economists were quick to point out that while this is technically deflation, it's not really deflation.  In a note to clients following the report, Paul Ashworth at Capital Economics wrote that,"this deflation is nothing to worry about. For a net importer like the US, lower gasoline prices are a good thing. Moreover, with the real economy doing well, there is little danger that this temporary bout of falling energy prices will develop into a more insidious debt-deflation spiral." Pantheon Macro's Ian Shepherdson was more direct, writing: "In one line: Falling goods’ prices do not constitute deflation." Read »

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