AP: Southeast price level is lower than the rest of the U.S.
The Bureau of Labor Statistics announced the regional inflation statistics today. The new consumer price index (CPI) numbers indicate that the country's price level is still declining, and the Southeast is experiencing slightly more of a decline. Prices in the U.S. fell by 1.5% since this time last year, and prices in the Southeast fell by 1.6%. This price level decline means that we are experiencing deflation rather than inflation. Atlanta had the highest level of deflation in the Southeast, with an overall price drop of 3.8%.
Causes of the price level drop
The housing sector is still driving down the price level, but housing prices are beginning to level off. The housing sector price decline was a relatively small 0.3%. The biggest deflation was found in the transportation sector. Transportation prices fell by 13% in the Southeast and 12% in the U.S. Atlanta experienced the largest decline in transportation prices at a 16% drop. Almost all Atlanta industry prices fell, even the price of medical care. Education/Communication was the only industry sector to experience any inflation at all.
Why the price level matters
The inflation rate is an indicator of how fast the general price level is increasing. As the price level rises, each dollar buys fewer goods and services. The purchasing power of our currency is eroded through inflation, which is why we track inflation so closely. The recent deflation that we are experiencing means that the price level is falling rather than rising. Factors that have contributed to the current deflation are low consumer confidence, high unemployment, relatively low oil prices, and low consumer spending brought about by declining real incomes.
Inflation is not likely to become a problem for us until the unemployment rate declines. As we work more, earn more, and buy more, the price level will start to rise. The Fed monitors the price level and can take steps to reduce it if it becomes a problem for the economy as a whole.
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