"CPI and PPI Both Showing Deflation
This morning's CPI report showed that consumer prices declined by 0.4% versus their levels a year ago. It also confirmed the deflationary trends in yesterday's PPI report, which showed a 3.5% year/year decline in producer prices. Negative prints in the CPI or PPI are rare enough, but for both to be negative in the same month is even more unlikely. Since 1948, there have only been 20 other months out of 734 where both indices were negative on a year/year basis. The last time we saw this occur was back in July 1955. In the chart below, we show the historical average reading of the year/year PPI and CPI. As shown, the current level of -1.95% represents a 59-year low.
While statistics like these cause most people to consider inflation the least of our worries, things have a way of changing fast. As recently as seven months ago (August 2008), the average inflation gauge was rising at the fastest rate since December 1981.