US inflation slowed to 50-yr low last year as industrial output fell for the first time since 2002, raising the specter of deflation. Consumer confidence is also at depressed levels suggesting that the economy could take longer to recover from the downturn that augurs to be the longest and perhaps deepest since World War II. The US Consumer Price Index dropped 0.7 percent in December for a 3rd straight monthly decline, capping a year in which prices advanced only 0.1 percent, the weakest 12 month reading since December 1954, according to the US Labor Department.
Weakening economic activity worldwide has depressed commodity prices, pulling headline inflation figures down sharply and the core US inflation, sans the volatile food and energy costs, is also slowing, increasing the risk of deflation. Deflation is a sustained decline in price levels, and is regarded as dangerous because it stifles economic growth.
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