Deflation Chatter
It's all energy and it's all over.
John Otte
Published: Jan 8, 2010
In early 2009, the U.S. and world economies were still plumetting over the precipice. Slowing and negative economic growth trimmed demand for energy. Oil and gasoline prices plunged. They skidded from their 2008 peaks back down to their 2004 levels.
The economic wreck sparked talk of impending deflation. During 9 of the first 10 months of 2009, the U.S. Consumer Price Index was indeed negative. The U.S. economy was deflating.
Look at CPI components
"The deflation was all due to energy," says says Bob Dieli, a Chicago, Ill.-based macro economic consultant. "The energy price surge in 2008 drove the annual inflation rate higher. That's using the change in the CPI compared to the same month a year earlier as a measure.
 "Through much of 2009, plunging energy prices drove the all items, CPI lower," he says. "But suppose you look at the CPI for all items, excluding energy. It declined a bit in 2009. But it never dipped below 1.24%.
"The year-to-year declines in oil and energy prices that we saw in much of 2009 are behind us," he says. "Oil and gasoline prices are now higher than they were a year earlier. For the foreseeable future rising energy prices will push inflation and the CPI higher, not drag it lower.
Conclusive evidence of deflation
"When your health insurance company sends you a letter saying that you health insurance premiums are going down, you will know the economy is in a period of deflation."
Don't hold your breath.
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