U.S. consumer prices in October registered their largest single-month decline since before World War II .... —Jon Hilsenrath and Kelly Evans reporting in "Prices Post Rare Fall; A New Test for the Fed"

There were a couple of other "firsts" associated with the 1.0% drop in the Consumer Price Index (CPI). According to Thomson Financial News,

Energy prices fell 8.6% in October, the third straight drop and the largest drop since records began in 1957. October gas prices plunged 14.2%, the largest drop since those records began in 1967.

Good news, right? Right!—if you're relatively poor and living on an income that can't keep up with inflation, like most of the population of the U.S. The little bit of money you have is going to go further.

If, on the other hand, you're rather well-heeled and up to your eyeballs in leveraged investments, the last thing you want to hear is that prices are falling, which is known in economic circles as "deflation." Deflation makes it just that much harder to stay on the financial treadmill. Inflation of the value of your investments is one of the forces you count on to help you "stay ahead."

To put it another way, deflation for the indebted person of means is as horrid as inflation is for the mass of people who try to live off a fixed income as prices rise. Thus, the writers for the Wall Street Journal note that the drop in CPI—

... creates a new challenge for policy makers: avoiding a bout of deflation, a prolonged period of falling prices throughout the economy.

Which gives you some clue as to just whose interests the "policy makers" are looking after.

All this made for a grim day on Wall Street yesterday. The whiff of deflation was in the air, the news emerged that the value of derivatives based on commercial real estate mortgages might be following the example of their subprime cousins, and there were doubts that Congress could or would save the American automobile industry from collapse. If that weren't enough, there was another "first"—

Economic concerns were compounded Wednesday by a Commerce Department report showing new-home construction fell 4.5% in October to a seasonally adjusted annual rate of 791,000, the lowest level since the series began in 1947.1

The stock market took a dive. General Motors fell to $2.79, a closing price for its stock not seen since 1943! All thirty stocks that make up the Dow Jones Industrial Average (DJIA or "Dow") fell lower.

But I seem to have wandered. Let me get back to the decline in consumer prices.

The authors of my opening quote had these words of reassurance for anyone wealthy enough to fear deflation—

The odds of such an event are still considered small by most economists.

Personally, if I were worried about deflation, that assurance would send shivers down my spine. Aren't these the same economists who estimated the odds that the present economic debacle could ever occur at close to zero?

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"First" of the Day: Record decline in retail sales (11/16/08)

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