When I saw the headline “Consumer Prices Fall by Record Amount” I was ready to move into full-blown panic mode. Everyone likes to spend less, of course, but deflation is a bad thing and record deflation could be really terrifying. Fortunately, this turns out to be one of those situations they had in mind when they came up with the “core” inflation statistic that eliminates consideration of volatile commodities like energy:
Energy prices led the decline, falling 8.6 percent in October as the price of gasoline continued its steady slide from highs of more than $4 a gallon. The costs of transportation fell 5.4 percent while clothing prices fell 1 percent. [...] Even excluding volatile food and energy prices, prices dropped 0.1 percent in October. It was the first such decline in more than two decades and raises the specter of deflation as the economy contracts and demand for goods and services across the board plunges. [...] Mr. Sullivan added that he expects core prices, which are up 2.2 percent this year, to continue to fall back, but he does not expect them to slip into negative territory.
That’s not nearly as terrifying. Still, any core deflation at all is rare — we got through the last two recessions without any, which is how you know they were relatively mild recessions.
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