CPI: How Many Negatives Make it Deflation?
Friday Stats Canada came out with the monthly CPI numbers and again prices were down 0.9% year over year (September to September). Last month we were down 0.8% year over year so that means the drop continues (OK, not for real given this is all due to Gasoline price fluctuation), so when do we call it Deflation?
The major contributor to the year-over-year decline in the Consumer Price Index (CPI) in September was energy products, as it has been for a number of months. Overall, in the 12 months to September, energy prices fell 18.7%.
Interesting, but given Energy prices started to moderate about this time last year, we may not be able to take advantage of that for much longer (of course I did say that last month didn’t I?).
Deflation Yet?
OK, so for real what were the big ups on the index? Food (of course), but surprisingly it seems to be moderating being only a 2.8% increase (year over year), however, Health and Personal Care is up 3.9% which is worrying with our aging work force (and with the looming PANDEMIC of Swine Flu). Alcohol and Fun stuff was up by 2.8% as well (why is it always the good stuff that keeps going up?), but Energies drop by 18.7% still looks astounding in the index.
The Big Deflation Table
| (2002=100) | |||||
|---|---|---|---|---|---|
| Relative import | Sept 2008 | Sept 2009 | Aug 2008 to Aug 2009 | Sept 2008 to Sept 2009 | |
| Unadjusted | |||||
| % change | |||||
| All-items | 100.00 | 115.7 | 114.7 | -0.8 | -0.9 |
| Food | 17.04 | 117.1 | 120.4 | 4.0 | 2.8 |
| Shelter | 26.62 | 123.1 | 120.9 | -2.2 | -1.8 |
| Household operations and furnishings | 11.10 | 105.6 | 107.9 | 2.5 | 2.2 |
| Clothing and footwear | 5.36 | 96.1 | 94.9 | -1.7 | -1.2 |
| Transportation | 19.88 | 122.4 | 113.6 | -6.7 | -7.2 |
| Health and personal care | 4.73 | 109.4 | 113.7 | 2.9 | 3.9 |
| Recreation, education and reading | 12.20 | 103.9 | 105.0 | 0.9 | 1.1 |
| Alcoholic beverages and tobacco products | 3.07 | 128.0 | 131.3 | 3.1 | 2.6 |
| All-items (1992=100) | 137.7 | 136.5 | -0.7 | -0.9 | |
| Special aggregates | |||||
| Goods | 48.78 | 111.5 | 107.4 | -3.3 | -3.7 |
| Services | 51.22 | 119.8 | 121.9 | 1.7 | 1.8 |
| All-items excluding food and energy | 73.57 | 110.8 | 111.8 | 0.9 | 0.9 |
| Energy | 9.38 | 161.5 | 131.3 | -19.1 | -18.7 |
| Core CPI4 | 82.71 | 112.4 | 114.1 | 1.6 | 1.5 |
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October 19th, 2009 at 9:19 AM
It becomes deflation when core CPI goes negative. Until then, it’s fluctuation in volatile items (note that core CPI excludes both food and energy, the two biggest fluctuators).
I’ve said it before and I’ll say it again. Headline CPI is useful for COLAs, since it reflects the actual difference in cost of living. But core CPI is the only thing that gives much indication of economic health.