Prices paid by U.S. consumers will fall in September - is it less inflation or start of scary deflation?
Paula Zubeda
Oct. 15, 2006

Prices paid by U.S. consumers will fall in September. The consumer price index gained 0.02% in August. Most likely it will fall o.4% in September. The lower energy prices especially gasoline in the pump stations will be a major factor.

The core CPI is due on Wednesday, October 18th. The biggest question for economists is not if it will fall. The question is what does that fall really signify?

Federal Reserve is convinced it is the sigh of checked inflation. They are ecstatic about their success and want to keep the vigil on.

In the market place whenever you see some one is sanguine about something, you know very well something is wrong. The long bond market is telling a very different story. It has started singing the tune of something very scary. The stock market at this time is jubilant thinking the world is under the control of the Fed and all are clean for higher stock valuation.

The market surprises every one all the time. The least expected happens again and again. So we tried to focus on what is least expected in the minds of stock market gurus and the Fed?

We found a scary ‘D’ word. Yes, we are talking about nasty self-fueling deflation in the coming months and years. The energy shock effect at the gas stations have affected the consumer. The political reality is also another factor. The confidence in the system is shaken. People for the first time realize how lucky they are living peacefully in their home.

These all translates into a consumer driven deflation that will result in a nasty recession if not an outright multi-decade depression.

Prices paid by U.S. consumers will fall in September - is it less inflation or start of scary deflation?
Paula Zubeda
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