The growing risk of deflation in the US

While we were busy talking about the aggressiveness of the Fed Reserve in cutting the Fed fund rates by 75 basis point to a near zero level and how the financial markets 'rejoiced" over the move, it may have slipped our attention that another important data for the US, ie November CPI also came out on the same day. The most striking news about the CPI this time was the November data declined by a very drastic rate compared with the October ones. After witnessing a significant rise in inflation over the passed half year, it seems that we are now experiencing its corresponding drastic drop. Below is an analysis of this stunning monthly drop and its significance to deflation. After reading it, I believe many of us will be waiting eagerly for the December reading which will come out on January 16 2009.

dshort.com: The November 2008 inflation rate was 1.07%, a stunning decline from October's 3.66%. In fact, the November Consumer Price Index for Urban Consumers (CPI-U) marked the largest monthly decline since January 1932 — the threshold of the Great Depression.

The Bureau of Labor Statistics began tracking the CPI in 1913. Since that time, only seven months have registered a month-on-month decline greater than 1.9%. In addition to January 1932, six occurred during the horrific deflation of the 1920s, as the above chart illustrates.

MyTake: Looks like the risk of deflation got higher! Would the US and world economies move in the following pattern ie recession, inflation, deflation, depression, stagflation or stagdeflation and recovery? We are living in very exciting times....imagine experiencing all these cycles in our life time?.....

* With the US Fed Reserve virtually abandoning Plan A (ie reducing interest rate), Plan B would include quantitative easing which means buying more long dated Treasuries and rolling out more program to boost the availability of loans - egs auto, student, credit card and to other lending customers.

* BT: Starting from April 2009, Malaysia timber companies will have to show documents that their sawn timber shipped into the US is legally sourced. Exactly how ah?

* As USD slides, Gold Bullion hits the USD850 mark.

* Goldman Sachs reported a loss for the 1st time since it went public in 1999 with a USD23b quarter loss.