Here are a couple of data points for you.
The graph to the left, courtesy of Jake at EconomPicData.com, pretty clearly shows you what happened to prices during the past month. Overall, prices fell 1% from September to October, though the core rate fell only 0.1%. The large decline is due primarily to the implosion of the price of crude oil. Nevertheless, the decline is the largest since before World War ll and the decline in the core rate is the first such since 1982.
The news touched off the usual flurry of discussion about deflation rather than inflation rearing its ugly head and the usual spate of stories about the difficulties of coping with it. For a refreshing and cautionary take about not getting ahead of ourselves with worries about deflation let me refer you to an article in the WSJ economics blog today. The author points out that in 2002 the Fed started worrying about deflation which of course never occurred. Yet, to an extent that concern was part of the rationale for the low interest rate policy that they pursued to disastrous results. He sounds a warning about reading too much into today's numbers.
The other point is the same old story about new residential construction. Down again. Housing starts (this includes multi-family) were down to 791,000 in October. Once again we go back to the World War ll times, this time just after the war, to find such similarly dismal results. Single family home starts were down 3.3% to 531,000. It's a tough row we're hoeing right now but it has to be done. Until the excess supply is worked off it's unreasonable to expect this number to change much.
Tom Lindmark
More: Housing Starts, CPI
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