Finding Good News in Falling Prices

NY TIMES -- So amid all the legitimate worries about deflation, it’s worth considering what may be the one silver lining in the incredibly bad run of recent economic news: The cost of living is falling. The cost of fruits, vegetables, clothing and vehicles are all dropping. Housing prices have been falling for more than two years, and a barrel of oil costs about $45, down from $145 in July.

Jobs are disappearing, bonuses are shrinking and raises will be hard to come by. But the drop in prices, which isn’t over yet, will make life easier on millions of people. It’s possible, in fact, that the current recession will do less harm to the typical family’s income than it does to many other parts of the economy. Strange as it sounds, the drop in prices will keep real incomes — inflation-adjusted incomes — from dropping too much.

MP: The graph above shows annual CPI inflation, which fell to a 43-year low of 1% in November.