Courtesy of Thredgold Economic Associates

The enormous decline in consumer inflation pressures of the past six months continued unabated in December.  The Consumer Price Index (the CPI) fell another 0.7% during the month, the third major decline in a row. November’s larger 1.7% decline in consumer prices was the largest since monthly recordkeeping began in 1947.

The upward spike in energy and other commodity prices during 2007 and
through July 2008 pushed inflation to painful levels.  The CPI rose
4.1% during 2007, the largest annual rise in 16 years. As recently as
six months ago, the year-over-year rise in consumer prices was
approaching 6.0%.

As it turned out, the CPI rose just 0.1% during 2008, the smallest
rise since 1954, a period of (you guessed it) 54 years. The CPI
actually contracted at a 12.7% annual rate during 2008’s final three
months. Most forecasters see the CPI rising between 1.0% and 2.0%
during 2009.

Inflation expectations during the next few years are all over the map. Some economists see the impact of massive U.S. Treasury spending and unprecedented monetary stimulus from the Federal Reserve leading to much higher levels of inflation in coming years. Other forecasters see deflation being the more likely scenario, tied to ongoing home price deflation, declining raw land prices, declining commercial real estate values, soft commodity prices, weak wage gains, and ongoing poor U.S. and global economic performance.