The U.S. Department of Labor announced today that consumer prices indexed by the CPI saw their smallest increase since 1954 last year, a fact which may seem shocking to some.

Most economists believe that due to reduced lending conditions, a shrinking money supply is likely to cause deflationary pressures, explaining the 0.1 per cent inflation rate in 2008. Of course, shrinking money supply was only a portion of the effect, an overarching retreat of energy prices (a year-to-year fall of 23 per cent) and transportation prices (falling 13.3 per cent) explains the majority of the collapse.

Oil prices peaked at just under $150 in July of 2008, only to reach closer to $30 by the end of the year.

Inflation in other areas including food and beverages (5.8 per cent), housing (2.4 per cent - with an end weighted housing price collapse), and education (3.4 per cent) shows slightly lower than “normal” inflation rates - economists differ on opinions of what normal is and if it is achievable. The average inflation excluding the highly variable food and energy sat at 1.8 per cent year-to-year.

For comparison, the overall inflation rate in 2007 was 4.1 per cent.

“The index for apparel turned down in December, declining 0.9 percent after rising 0.3 percent in November. Prior to seasonal adjustment, apparel prices fell 3.5 percent, and are 1.0 percent below their December 2007 level. The index for medical care rose 0.3 percent in December after increasing 0.2 percent in November, and is up 2.6 percent over the past year. The medical care commodities index increased 0.5 percent, with the index for nonprescription drugs and medical supplies rising 1.1 percent. The index for medical care services advanced 0.2 percent in December after rising 0.1 percent in November. The physicians’ services index increased 0.4 percent and the index for hospital and related services rose 0.5 percent,” said the report with regard to more niche industries.

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