The U.S. Department of Labor reported the inflation numbers for October yesterday. With seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) declined by 0.96% in October compared to September and was 3.88% higher than October 2007. This was the largest one month decline since the seasonally adjusted data began in 1947.
We have gone from inflation concerns in the beginning of the year to facing deflation. The huge rise and fall of inflation was due mostly to the oil bubble. Core CPI (CPI less food and energy) with seasonal adjustments was down by a tamer 0.07% compared to September and up 2.22% compared to a year ago.
Nouriel Roubini, Professor of Economics at the Stern School of Business at NYU, has predicted that we would be entering into a period of stag-deflation since January:
Back in January, I argued that four major forces would lead to a risk of deflation-- or "stag-deflation," where a recession would be associated with deflationary forces--rather than the inflation that mainstream analysts have worried about. They were: (1) a slack in goods markets, (2) a re-coupling of the rest of the world with the U.S. recession, (3) a slack in labor markets, and (4) a sharp fall in commodity prices following such U.S. and global contraction, which would reduce inflationary forces and lead to deflationary forces in the global economy.
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