Good economic news: Consumer prices up
byFeb 24th 2009 10:30AM
The news that consumer prices are up may not sound like good news, but it is during a recession.
The Consumer Price Index for All Urban Consumers, or CPI-U, increased 0.3% in January after declining in each of the three previous months, according to the federal Bureau of Labor Statistics.
While it was only a slight increase, it wasn't a decrease in the prices people pay for goods, such as food and energy, as has happened for a long while.
What has been happening during much of the recession is deflation, or the dropping of prices because consumers aren't buying much. That creates a vicious circle, leading companies to stop production to get rid of inventory, and for consumers to expect prices to drop continuously and thus waiting for prices to drop enough for a great bargain. Deflation was a big part of Japan's "Lost Decade" in the 1990s.
While the CPI-U for the 12 months ending in December 2008 was unchanged, it has increased for the past three months, and if that trend continues it could point to the recession lessening as prices increase.
Energy, for example, climbed 1.7% in January, its first increase in six months. But don't get too excited; energy prices are still low. The energy index was still 31.4% below its July 2008 peak. And in case you haven't' noticed higher prices at the gas pump, the gasoline index rose 6% in January after a 19.3% drop in December.
The food index has risen 5.3% over the past year, although fruits and vegetable prices continue to fall. The CPI-U also saw large increases in the indexes for rent, new vehicles and apparel.
Deflation, and the problems that come with it such as companies laying people off, isn't over yet, but it looks to be slowly going away.
Here's a quick primer on the CPI: