Posted by Marcelo Perez

Deflation has hit all corners of the economy, as prices for consumer products and services have declined with the rest of the markets. In December, the Consumer Price Index was down 0.7% for the month, after a record 1.7% decline in November. November witnessed the steepest decline in the CPI since 1947. The CPI has declined for five straight months, after showing sharp gains in the first half of 2008.

The report was slightly worse (that’s right; we see falling prices as a good thing! JYC3)than expected, as economists were expecting a 0.8% decline in the CPI. Core CPI, which excludes energy and food prices because of their volatile nature, came in flat, inline with economists expectations. In the last year, consumer prices have increased only 0.1%, the smallest gain in 54 years. Core CPI has risen 1.8% in the same period, the slowest pace since 2003.

The reading was largely attributed to a decrease in consumer energy prices. Energy prices in the US fell 8.3% for the month, after a record 17% decline in November. The index for gasoline decreased a record 17%, following a record 29.5% decrease in November.

In December, prices were flat or falling in most major consumer categories, with health and education serving as the exceptions.

Energy prices fell 8.3%, including a 17% drop in gasoline prices and a 13% drop in fuel oil prices. Excluding energy, the CPI was flat.

Food prices fell 0.1%, led by declining prices for fruits, vegetables, dairy and meat.

Shelter prices — which represent about a third of the CPI — were flat in December. Hotel rates fell 0.7%, rents rose 0.2%, and homeownership equivalent rent rose 0.1%.

Apparel prices fell 0.9%.

Transportation prices fell 4.4% on lower fuel bills. Airfares fell 1.2%. New vehicle prices fell 0.4%.

Medical care prices increased 0.3%.

Education and communication prices rose 0.3%, led by a 0.6% rise in tuition.

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