Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=106139
Story Retrieval Date: 10/25/2014 5:05:54 PM CST
The Consumer Price Index for All Urban Consumers decreased 1.0 percent in October on a seasonally adjusted basis, the Bureau of Labor Statistics reported. It was the largest one-month decrease since publication of seasonally adjusted changes began in February 1947.
But the October CPI was still 3.7 percent higher than a year earlier.
While the drop is historically significant, a DePaul University economist, Thomas Donley, said it is “not surprising given the recent economic activity.” He added that the October 1.4 percent increase in Real Earnings reported by the Bureau of Labor Statistics is driven by this change in the CPI.
Donley said that the CPI will moderate and that it would be false hope and bad news to think that it would continue to decline.
“Deflation is not good news,” Donley said. Deflation, a time of generally declining prices, is considered an ominous sign of a contracting economy.
Contributing to the CPI decline in October, the energy index fell 8.6 percent and motor fuel prices fell 14.2 percent. An increase in the electricity index and a small advance in the food index moderated the October decreases. But Donley said that the energy fall outweighed the increases.
The one area Donley said was surprising was that the housing index remained unchanged. He said he would have expected a decline in that area as well.
Adolfo Laurenti, senior economist for Mesirow Financial Holdings Inc., said that he would not emphasize the housing index, but the silver lining for consumers is that they are paying less for their utilities.
“What it [CPI-U] is really showing is weakening economic conditions,” Laurenti said, and that's attributed to a decline in consumer spending. He said that as he walked around the Water Tower on North Michigan Avenue last Friday afternoon, business appeared unusually slow.
“The bottom line is clear…it would be very hard for sellers to pass price increases,” Laurenti said.
“It’s hard to raise prices," Donley agreed. "Wage pressure is not an issue."
The CPI-U for the Chicago-Gary-Kenosha metropolitan area declined 0.9 percent in October, without seasonal adjustment, but was still 3.2 percent higher than in October a year ago.
Laurenti noted that the CPI-U declined a bit less than nationally in the Chicago metropolitan area, which includes areas that have a very heavy presence of manufacturing; an industry facing a lot of pressure. He said that he would expect Chicago to be a little more sheltered from such economic stress.