By Steven K. Beckner

(MNI) – Disinflation has intensified and become more widespread,
according to research at the San Francisco Federal Reserve Bank released
Monday.

“Both deflationary and disinflationary pressures are relatively
large by historical standards,” write Bart Hobijn, a senior research
advisor and Colin Gardiner, a research associate at the San Francisco
Fed.

“Over a sixth of consumer spending is on goods and services for
which prices are declining, while three-fourths is on goods and services
for which inflation has slowed,” Hoijn and Gardiner find in an article
published in the Bank’s Dec. 6 Economic Letter.

The two researchers go beyond conventional price indices to look at
the distribution of inflation rates across goods and services, not just
the central tendency of price changes. They look at what has happened to
the prices of 51 categories of goods and services that cover all
expenditures by U.S. consumers.

Breaking down the components of the price index for personal
consumption expenditures, they find that in October 2010, 10% of
consumer spending was on items whose prices over the last year had
decreased by 1.5% or more over the last year, and that half of the
expenditures were on goods whose prices had increased less than 1.4%.

“Prices have declined over the past year for goods and services
that make up 17% of all consumer spending,” write Hobijn and Gardiner.
“Though this might not be a general decline in prices of the type that
constitutes deflation, it is evidence that price declines are
widespread.”

Though the economy is not experiencing deflation, “inflation is
gradually falling to historically low levels.”

To measure how broadly based are the price pressures that are
driving inflation down, the authors look at the distribution of changes
in inflation rates across goods and services. For each expenditure item,
we compare the inflation rate over the past year with that registered a
year earlier.

They find that “disinflation has been broad.”

“At the beginning of the recession, 34% of expenditure categories
were experiencing disinflation,” write Hobijn and Gardiner. “The
percentage of expenditure categories experiencing disinflation peaked at
85% near the end of the recession. It has since decreased to its current
level of 72%.”

“Hence, almost three-fourths of consumer spending is on goods and
services for which inflation is slowing,” they write.

“While the current share of disinflationary expenditure categories
is not unprecedented, the magnitudes of deceleration in inflation are
the largest seen since the 1981 recession,” they continue.

They note that inflation fell in 1981 because of former Fed
Chairman Paul Volcker’s anti-inflationary tighten campaign, while the
recent disinflation has become despite unprecedented Fed easing.

“Despite exceptionally low interest rates, the breadth of
disinflation has remained quite large since the beginning of the last
recession,” they go on. “In October 2010, half of consumer spending was
on items whose inflation rate had declined 1.2% or more over the past
year.”

** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$BR$]