The Consumer Price Index, which measures how much Americans spend on consumer goods like groceries, clothing, entertainment and other goods and services, fell by 1 percent in October compared with prices in the previous month, says the NYT. “It was the steepest single-month drop in the 61-year history of the pricing survey.”

You’re thinking, “Good! I can buy more stuff with less money!” This is true, but the problem is that if everyone can buy more stuff with less money — what motivation is there to manufacture more stuff? Ah-ha. Troubling, isn’t it?

From the NYT:

“We’re looking at a pretty deep recession now,” Mr. Behravesh said. “ All of a sudden, any pricing power that companies might have had is gone. You’re going to see discounting like crazy going on. All kinds of sales. You’re going to see all kinds of prices being slashed.”

With consumers pulling back, many analysts are expecting a difficult Christmas shopping season. Retail sales, for example, were down 2.8 percent in October from September, and 4.1 percent from October 2007 as consumers pared their spending.

In Wednesday’s report, even excluding volatile food and energy prices, prices dropped 0.1 percent in October. It was the first such decline in more than two decades and raises the specter of deflation as the economy contracts and demand for goods and services across the board plunges.

“This month it’s more than slowing, it’s outright contraction,” Mr. O’Sullivan said. “And yes, if you extrapolate that, it’s deflation.”

For those of you wondering what deflation is — you can click here for a bleak explanation.

Consumer Prices Fall by Record Amount [NYTimes]
(Photo: Ben Popken )

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