Grab your nearest economist and hold them tight, prices are falling. The Labor Department says that the obsessed-over Consumer Price Index fell 0.4 percent for the year — the first annual drop since 1955.
Ideally, economists say that 2% inflation is consistent with a healthy economy and high employment. A decrease in prices sounds like a wonderful idea, but it can have disastrous consequences. (Click here for yesterday’s explanation of why deflation isn’t awesome.)
The WSJ points out that inflation was as high as 5% this August, before the price of energy and other commodities dropped.
In a sign of just how rapidly price risks have changed, annual inflation was above 5% as recently as last August, before energy and commodity price drops kicked in and the global economic downturn deepened, bringing prices down for many imported goods.
“I don’t think the concern about deflation in the nearer term is one that can be entirely discounted,” White House economic adviser Lawrence Summers said last week
The WSJ also noted that wages stayed about the same. An increase in hourly wage rates was offset by a decrease in the amount of hours worked.