As expected, inflation is now retreating in the face of financial turmoil and economic contraction.
Consumer prices were flat last month, following a 0.1% decline in August, the Labor Department reports. Of the eight major components of the consumer price index, three posted declines (housing, apparel and transportation prices) last month. Among those that posted increases, food and beverage prices led the way with a 0.6% rise. Core CPI (which excludes food and energy prices) rose 0.1%.
The data doesn’t yet confirm that inflation has faded from the economic landscape, but that future’s coming. CPI’s 12-month change dropped to 4.9% last month, down from 5.4% in August. It’s likely that the annual pace of consumer inflation will show further drops in the months to come, courtesy of the slowing economy that’s probably headed for contraction if it isn’t already shrinking.
Looking for lower inflation is hardly a dangerous forecast these days. Commodity prices have continued falling in October, with crude oil prices falling under $75 a barrel yesterday in New York futures trading for the first time in more than a year. A number of other key commodities are under selling pressure as well.
The big unwinding of the last five years is underway and it’ll roll on for a bit. It’s an across-the-board correction and it’s driven by fundamentals and fear. The U-turn doesn’t surprise us since there was a bull market in virtually everything for several years running. If one trend’s possible, so is the other. Cycles are as old as civilization, although it’s the degree of the rotation that’s so shocking this time, although the shock is directly related to our capacity for focusing primarily on the recent past and thinking that’s true perspective.