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-- Posted Wednesday, 19 November 2008 | Digg This Article | Source: GoldSeek.com

The October estimate of consumer price index declined -1.0% (-0.961%) m/m and was up 3.7% y/y. The core ex-food and energy estimate fell -0.1%(-0.071%) m/m and is up 2.2%. The ex-food estimate saw a sharp drop of -1.2% m/m and the ex-energy component was flat for the month. Energy prices dropped -8.6% and prices in the services sector were also flat for the month. 

Inside the data, the housing component, which comprises 42.4% of the overall index was flat and the owners equivalent rent subcomponent was up 0.1%.  The cost of transportation was down -5.4%. The cost of food rose 0.3%, apparel declined -1.0% , gasoline -14.2% and commodities were down -2.3% The cost of medical care increased 0.2% and education 0.2%.

The decline in the cost of transportation and gasoline were the primary catalysts behind the single largest decline in consumer prices since the creation of the index in 1947. The second straight record low recorded in the October inflation data confirms that the risk to the economy from pricing has rapidly moved from that of rapid inflation to the disinflation that is now moving through the system. The core rate of inflation is quickly converging on the Fed’s implied target zone of 1-2%. While at this point it does not appear that a general breakout of deflation is in the cards, the Fed would be wise to employ a potent communications policy with respect to the implied target rate as a way to shape market expectations during its experiment with the quantitative easing policy currently underway and the probability of a extended period of falling prices in many sectors of the economy. 


Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
555 Bryant St. #455
Palo Alto, CA 94301
650-323-4341 Ext 107
323-481-6720 (Cell)
650-745-7045 (Fax)

This report was prepared by Merk Investments LLC, and reflects the  current opinion of the authors.  It is based upon sources and data  believed to be accurate and reliable.  Opinions and forward-looking statements expressed are subject to change without notice.  This  information does not constitute investment advise nor a solicitation  or an offer to buy or sell any products or services. You are receiving  this email because you have signed up for our newsletter or expressed  interest in our views or services in the past. Please reply with  'unsubscribe' in the subject line if you wish to be removed from this  distribution list.

-- Posted Wednesday, 19 November 2008 | Digg This Article | Source: GoldSeek.com

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