I have been misinformed all my adult life. I have believed that our last deflationary period in the US was in the Great Depression of the 1930s. Not so.
I’ve been surprised by the increasingly common use in the press of the “D” word: deflation. It seems to roll off the tongues as smooth as honey.
Yet, all of my working life, deflation has been a topic that no one seems to broach. Mild inflation was OK. Inflation was survivable. But for deflation, “let’s not go there” has been the rule of polite conversation. Analogizing it to the childhood fear of the monster in the closet is not an overstatement.
But recently, its use seems to have become common. When I saw another casual reference to it today, I decided to look at the data.
I reviewed the seasonally adjusted CPI-U published by the U.S. Bureau of Labor Statistics. The CPI-U is a measure of the average change over time in the prices paid by all urban consumers for a market basket of consumer goods and services. The available data made it easy to look back over the last 60 years on a monthly basis.
- Between November 1948 and January 1950, a 14 month period, consumer prices decreased in 9 of the months and no change in 2 of the months.
- In each of mid-1951 and early-1952, we had three consecutive months of consumer price decreases.
- In 1954, 7 of the last 10 months were deflationary and in 1955-56, 7 of 13 months had consumer price decreases. In 1958-59, a 10 month period brought 5 months of consumer price decreases.
- Until 1986, there were no significant periods of consumer price decreases, just a month or two here and there. But in 1986, we had three consecutive months of consumer price decreases.
- 2001 brought 4 months of consumer price decreases in 6 months. 2003 brought 3 consumer price decreases months. 2005-2006 had 3 consumer price decreases months in 4.
- As of November 2008, we have now had consumer price decreases for 3 consecutive months.
What is “deflation”? Webster’s dictionary defines it as “a contraction in the volume of available money or credit that results in a general decline in prices.” We have had both a general decline in prices and a contraction in the volume of available credit.
As of November 2008, we have now had deflation for 3 consecutive months. This is the tenth multi-month period of deflation in the past 60 years.
I guess it’s no longer impolite to discuss deflation in polite company.
