Alert: Friday's CPI Likely to be Break 50-Year Record

Friday's consumer-price report is expected to show that 2009 marked the first annual decline in consumer prices in 54 years.

There will be conspiracy theorists who will charge the number is bogus, and there is some truth to the charge in any such aggregate number, especially when compiled by the government. BUT what is really going on is that the Fed isn't printing any new money to cause price inflation that would push prices higher. Further, the financial/economic crisis has caused a major increase in the demand to hold cash, which has a strong negative impact on prices. I don't buy that there is no price inflation, but it is certainly low.

That said, don't necessarily expect a repeat in 2010. The demand to hold cash has likely peaked and the Fed will likely be required to print enormous amounts of new money to support the borrowing the Treasury will have to do. By the second half of 2010, the price inflation should be noticeable.

UPDATE: I initially spotted the report that CPI would be negative for the year in a WSJ report. I was suspicious of the number in that I mentioned in the story that I didn't buy that there was no price inflation for the year, but I didn't check back over the CPI numbers from the government for the full year to see how likely it was that they would report such. Since then, I have, and it is tough to see how the CPI number will be negative for the full year.

I have also contacted the WSJ reporter who reported the story and she tells me she got the forecast from IHS Global Insight, and, indeed, there it is:

Barring a highly improbable surge, the biggest story from the upcoming report is bound to be the annual decline of the CPI in 2009—its first drop in 54 years.

I have a call into IHS and will report back when I hear from them.