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Friday, January 30, 2009

GDP Price Index Turns Negative: Stimulus on the Cheap?

For more details on the GDP Price Index (i.e. GDP Deflator), see GDP Deflator De-Mystified.

Bespoke details:

While the markets have been focused on the better than expected GDP report for the fourth quarter, the GDP price index was potentially even more notable. While economists were looking for a quarter/quarter annualized increase of 0.4%, the actual level was a decline of 0.1%. This negative print is only the seventh time since the end of WWII (and the first time since 1954) that prices decrease based on this measure. For now at least, the Fed's view that "inflation pressures will remain subdued in coming quarters" appears to be right on target.

The greatest impact on the GDP deflator (i.e. when negative it is the GDP inflator) were consumption prices (makes sense). What doesn't ring a bell is the decline in prices involved in government spending. Is it that this slowdown has made any stimulus plan more inexpensive to implement?

Source: BEA