2008 Inflation Slowest in 50 Years on Oil Prices, Economy

Slow spending, sliding energy costs lead to 0.1% CPI increase last year

By Clay Dillow, Newser Staff

Posted Jan 16, 2009 8:43 AM CST

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2008 Inflation Slowest in 50 Years on Oil Prices, Economy — U.S. Federal Reserve chairman Ben Bernanke and his colleagues have cut interest rates to near zero. (AP Photo/Matt Dunham)

In 2008, consumer prices crept up at the slowest rate since 1954, climbing just 0.1% for the year and missing the Fed’s preference of 1.5% to 2% by a wide margin, the Wall Street Journal reports. Just months after inflation hit 17-year highs, a 75% drop in oil prices and slower spending caused a drastic reversal in the CPI. Overall energy prices dipped 21.3% in 2008, the largest annual decline ever.

Price declines in energy and commodities are generally manageable; when they spread to the broader economy, there’s a potential for a deflationary spiral akin to Japan’s woes in the 1990s, but by cutting interest rates to near zero, the Fed has already taken action to prevent such a scenario. Some economists think CPI will turn negative on an annual basis soon.
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