When all you read is gloom, turn here for a much different perspective.

Saturday, December 20, 2008

Prices are Falling

The inflation report released by the government on Tuesday showed that the Consumer Price Index was 3 percent lower last month than it had been three months earlier.

What does that mean? It means the cost of living is going down. That's right, down.

Now some of you may have caught this good news story in the papers and what did they try to do -- turn it into bad news... how? By talking about the evils of deflation.

Deflation is bad for the economy only if prices fall significantly below what it takes to produce the products measured by the deflation index.

But in this case what is really occuring is not widespread price declines, but a huge fall in the cost of energy. We've covered the gasoline decline here. And since then, oil prices continue to fall. For
most of the year, high energy prices have caused consumer prices to soar, reaching a 17-year high in July. But energy prices have fallen about 70% since then.

It is extremely noteworthy that most of the other prices in the core of the price index have remained steady. This is double good news. Significantly lowered energy prices have helped every American with their monthly (if not weekly) budget. The risks of deflation are very slim.

Let's enjoy the lower cost of living while we can...

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