Index: Consumer prices plummeting

11.20.08
By Lewis Green

At first, the headlines may sound like good news: consumer prices have fallen at their steepest rate in over 60 years.

As consumers, we should all be raising a cheer for lower prices, right? Not so fast.

For one thing, the consumer price index (CPI) reflects the general state of the nation's economy. When the economy is booming, prices often increase - and interest rates can be raised to help curb inflation.

In contrast, when the economy falls into a deflationary spiral, it can have a negative effect on a number of different factors - including employment. The good news is that the country is not at this point - yet.

October's CPI reveals the rate of growth declined by 1 percent, which was twice as fast as estimates had predicted.

But, as you may have noticed, bargain-basement prices are still far from the norm. In fact, last month's consumer prices were 3.7 percent higher than they were at the same point in 2007.

It may sound strange to you that the government should be worrying about deflation right now. But the economy is complex - and we are still recovering from some record-high prices seen this summer.

In fact, the majority of October's decrease was a result of drops in the price of oil and gas, as well as some falls in airline fares, cars and clothing.

Many retailers have been cutting prices in the hope of luring consumers to unlock their wallets and buy more. Retail sales have been heading downward in the past few months and some are saying this year's holiday season could be the weakest seen in decades.

So, the bottom line is that if you are shopping for some good deals on consumer goods in the next couple of months, you could hit the jackpot. However, these latest figures suggest the nation's troubles are far from over.

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The prices on many items are falling