CPI Plunge Screams Deflation

Those of you who have seen the chart below on my blog over the last year-and-a-half might have already guessed what it looks like after yesterday's dramatic plunge in the consumer price index - it's now screaming DEFLATION.
Not that there's anyreal significance to the fact that it's screaming deflation.

As noted here, in a world full of fiat money, "deflation" is nothing more than an amusing side-show to the much more important financial troika of global deleveraging - collapsing asset bubble - global reflation, a sequence that has now been set in motion.

It won't be pretty to watch, but, in the end, you'll end up paying much, much more for nearly everything, everywhere. That is, once the "chain catches the sprocket".

As for the chart above, a simple substitution of the Case-Shiller Home Price Index for the nefarious owners' equivalent rent component in the Labor Department's nefarious Consumer Price Index reveals a year-over-year inflation rate of minus one percent.

That can't be good...

About the only thing that was keeping this measure of inflation/deflation out of negative territory earlier in the year was $150 crude oil.

Now that crude oil is closing in on $50 a barrel and there seems to be no end in sight for home price declines, look for this to dip further into negative territory next month.

Comments

[patio:]

Tim, so now, and until this trend bottoms and then reverses, cash is indeed king. That assumes of course the dollar remains strong or at least flat vs. alternative currencies.
Suggested basket of vehicles to be in once the reversal is detected?
And any ideas when that might occur?

2008 Nov 20 08:41 AM

[The Hern:]

I wish you all would make up your minds! First, you worry about inflation. Now, we finally learn that the PPI went down so we are all going to be paying LESS for things than before and inflation is a non-issue...and now you worry about deflation. Let's try deflation for awhiIe so we can all save a little more in these difficult times with unemployment rising.

2008 Nov 20 09:54 AM

[TinyTim:]

au contraire- the PPI took a mighty jump. this will trickle down into the CPI soon enough.

2008 Nov 20 04:38 PM

[CLH:]

Yes deflation has only started. The only people that will have jobs are those willing to work for less. The minimum wage must be killed (can you think or any reason why the politicians should set wages)? Its better to work then not to have a job.

2008 Nov 20 04:52 PM

[Robert Nabloid:]

I can't believe anyone still follows the PPI or CPI with full faith. It may give a smaller (and incomplete) picture - but it isn't telling the whole story.

2008 Nov 20 08:20 PM