US consumer prices down 1%, core prices also down

Consumer prices came down more than expected with the CPI (Consumer Price Index) falling 1.0% month-to-month. This s a large decline, but is entirely related to fall in the price of oil. Underlying core CPI excluding food and energy, down 0.1 month-to-month, remains steady on a year-to-year basis.

Although the 1.0% fall is being touted by media outlets as the largest fall on record, this is not true. The data series goes back to 1913 and the largest month-to-month fall was in February 1921 when we saw a fall of 3.2% in the midst of a severe deflationary recession after World War I and the Spanish Flu. If you hear otherwise, you now know the facts.

The Bureau of Labor Statistics statement says:

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in October, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The October level of 216.573 (1982-84=100) was 3.7 percent higher than in October 2007.

Below is my graph of yearly inflation in the reported series (non-seasonally adjusted CPI – CUUR0000SA0). In July, just three months ago, the year-on-year change in the CPI was 5.6%. Now, it is only 3.7%. That is a huge decline.

The fall in prices, while steep is predicated entirely on oil price declines. However, if you look at core CPI, the picture is much more muted with the CPI excluding food and energy at 2%, where it has been since 2004 after a brief deflationary scare in 2003.

From where I sit, this information reinforces the idea that falling oil prices are going to bring down inflation for some time to come as comparisons to year ago levels will continue to be favorable. However, there has not been a similar move in underlying core inflation as yet. Consumer price deflation is a completely oil-related phenomenon to date.

Consumer Price Index Summary – Bureau of Labor Statistics

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