Consumer prices dropped so much in November that goods and services are almost free. Energy prices were down 17%, lead by the falling price of gas.
The Consumer Price Index dropped 1.7% after falling 1% the previous month. People who keep track of such things say that this has not happened in two consecutive months since 1947. The five decades between disasters is hardly comforting.
But, is it a disaster?
Numbers on housing starts also hit the news this morning and they were down almost 19%. Taken as a whole all the data would suggest that the specter of deflation is closer to the economy now. Analysts are concerned that prices could drop so fast that businesses cannot make money and selling a house at a profit will become impossible.
There is another side to all of that. Some people don’t want to buy anything because they are out of work or believe they will be soon. Citizens with jobs that are safe don’t think they can afford much because their wages will not be rising and they have little access to credit.
But, at some point, prices get too good to be true. When that begins to happen there is at least some hope that the consumer will move back into the market, baiting, for good or bad, by the ability to buy things at prices which he has not seen during his lifetime. He may believe that they are prices so low that he will never see them again.
The same dynamics hold true for business. They can now acquire the necessities for operating their firms at remarkably low costs. That holds true of labor although it tends to dehumanize the workforce.
Better to be dehumanized than be out of work.
Douglas A. McIntyre