Fending off Deflation?

[pinqy]

From The Bureau of Labor Statistics

On a seasonally adjusted basis, the CPI-U increased 0.3 percent in January after declining in each of the three previous months. The energy index climbed 1.7 percent in January, its first increase in six months, but it was still 31.4 percent below its July 2008 peak level. Within energy, the gasoline index rose 6.0 percent in January after a 19.3 percent decline in December. However, some energy components continued to decline; the fuel oil index fell 3.7 percent in January and the index for natural gas declined 3.6 percent. The food index, which rose sharply during the summer and moderated through the fall, increased 0.1 percent in January after being virtually unchanged in December. The food index has risen 5.3 percent over the past year.

Which way will things end up going? The PPI also went up in Jan. It seems to me that it's been the huge changes in energy and housing that's had the most effect and led to 3 months of declining price. If things become more stable, I would hope to see a steady, low, monthly increase in the CPI.

[GoesTo11]

1. Good news on this front.

I went grocery shopping today, and couldn't believe how much some things had gone up. Like nuts, cheese, frozen foods, decent fruit. I spent about a third as much as I planned to because everything looked so expensive.

[Hawkowl]

2. Bifurcation

We will need a new name for the combination of inflation/deflation that is occurring and will continue.

Energy prices will continue to climb because the resources are controlled by a greedy oligopoly that raise prices regardless of the demand for their product. Higher prices equal higher profits even though less quantities are consumed. Food also has gone the way of oligopoly with an even higher inelastic demand curve than energy. During the Great Depression 1/3 of all Americans were farmers. In fact in classical economic textbooks, farmers were the example used for "perfect competition", i.e; where supply and demand magically balanced to yield the optimal solution. No more. Now only 1/100 or 1% of Americans are farmers. In fact 2% of all farms produce 50% of all agricultural products in the US. Four firms handle all beef slaughter. Four firms handle 60% of all pig farming. Large corporations control 98% of all poultry farming. (Source: Oxfam. Google is your friend). Oligopolies just one step short of monopolies means they can charge anything they want and you will pay because you need to eat. So expect food and energy prices to rise to offset the declining consumption (ironic eh?) to keep profits growing. It is a classical economic argument.

On the other hand, expect deflation to run rampant in markets that are not oligopolies and/or markets for consumer items not essential such as cars, electronics etc. This will lead to a continual unabated rise in unemployment--which leads to more deflation. The wicked spiral.

This will continue until the government breaks up the monopolies (ala Teddy Roosevelt, the trust-buster) and breaks the strangle hold corporations have over our very existence.