Chicken Little would have something new to squawk about today: Prices are falling! Prices are falling!
Last week the Bureau of Labor Statistics (BLS) said prices at the producer level fell 0.7 percent in January, and were 1.8 percent lower than a year earlier.
The price of foreign goods sold in the US fell 1.3 percent in January - down 6.1 percent from a year earlier.
Yesterday, the BLS said the consumer price index was flat in January. This is the first time that's happened in four years. The biggest drop in energy prices in almost seven years offset price increases elsewhere. Over the past three months, the index is up a mere 0.7 percent at an annual rate.
Some economists, assuming the CPI exaggerates inflation, would say the nation is experiencing deflation.
But it is unlikely prices will fall over a year or so. Prices, over time, reflect monetary policy, and the Federal Reserve has let the supply of money grow at an abundant rate.
Something else happened Tuesday. For the first time in 11 years, the BLS used a new "market basket" for the CPI. This reflects what consumers spent their money on in the 1993-95 period versus 1982-84.
Consumers change their purchasing patterns in response to a myriad of factors. Relative prices change. Incomes change. Demography changes. New products are brought onto the market. Marketing techniques vary.
In the last decade, for instance, the sale of music tapes has fallen relative to that of compact discs. Few consumers owned computers in the early 1980s. Today they are common purchases, along with software, modems, printers, mouse pads, and so on.
The new basket made no difference to the CPI in January. But it could in the months ahead.
The BLS has plans to revise that market basket more often, perhaps in four or five years - if it gets the money from Congress to do so.
Because the CPI is such an important measure, we urge Congress to provide any necessary funding. A more precise CPI should assure Social Security pensioners and all taxpayers that price adjustments are fair.