CPI + PPI = Deflation

With today's negative print in the October PPI, producer prices have now declined for three straight months.  Since 1947, there have only been 13 other periods where the PPI declined for three months or more.  The longest streak was in 1997 when the PPI declined by 1.6% over a six-month span. 

In addition to the three-month losing streak in the PPI, tomorrow's CPI is also forecast to show a decline of 0.8%.  Like the PPI, if this were to occur, it would also mark the third straight month of declines.  Three-month losing streaks in the CPI are even less frequent than three-month declines in the PPI.  Since 1947, there have only been six other periods where the CPI declined for at least three months in a row.  The longest streak was from August 1948 through February 1949 when the headline CPI declined by 2.1% over a six-month period. 

Periods when both the CPI and PPI decline for three straight months are even more infrequent.  Since 1947, there have only been five other periods where both went down in tandem with each other, with the last period occurring in late 2001.  Given the infrequency of these occurrences, it's hard to believe that it was only two months ago that "upside risks to inflation" were still of "significant concern" to the Federal Reserve.

Comments

[JimWe:]

At what point does disinflation become deflation. That is - the modest fall in commodity prices in 1997 was a benefit to the economy. Of course, the situations are completely different, but with all the commentary about deflation I am wondering if there is a point where we know the spiral is getting out of control?

2008 Nov 18 06:10 PM

[investor88:]

Good article, the table shows a deflationary trend now going on. Bears watching.

2008 Nov 18 06:28 PM

[fatcat:]

Jim makes a good point...runups in oil and food are bleeding down,or disinflating,other things are just plain overpriced: 5k boob jobs or lasik.40k for a fully equipped pickup.30k for kitchen cabinets and you can add to this list forever.

It all goes back to house price inflation and the resulting inflation of most everything else.How many people will be working in the granite countertop business next year or getting cosmetic or elective surgery.?

Forget deflation,we will be lucky if we don't see 18-20% unemployment next year...

2008 Nov 18 07:22 PM

[sickofthehype:]

Money supply is up 100%, is that right? $2 trillion and still throwing 'stimulus' at the economy.. Deflation is temporary to a slap in the face by inflation which is right around the corner. Don't convince yourself too soon that the gov't will stand for a deflationary spiral that will kill everything. Does anyone really honestly think that the government will sit back and watch its debt become even harder to pay off? Just watch.

In about 2-3 years you'll WISH you could trick out your kitchen for $30K.

2008 Nov 18 07:44 PM

[FETZ:]

Has there ever been deflation in the US since the abolition of the gold standard. This rhymes of the nonsense said by many economists during the Clinton administration that all the US debt would be paid off and it would effect the ability to hedge other debt or set other debt prices because there would be no more Treasuries. During that same time they were extremely concerned about deflation. Right before commodities went on an upward spiral. What a joke.

2008 Nov 18 07:51 PM

[Steven Hansen:]

fetz - there has not been real deflation since the depression. i assume you are trying to insinuate there is some connection between a gold based currency and deflation. there is that connection. in a growing economy with a backed currency, there is a tendency to deflate (all things being equal). in a well run fiat currency (not claiming the usa is well run) where the economy is expanding, there is an inflationary tendency (all things being equal). a deflation of a fiat currency is a serious event because it is saying serious fundamental tears are happening within the framework of the economy / currency. the same would be true if inflation was happening in a backed currency.

2008 Nov 18 08:12 PM