Dipping Prices To Be A Major Headache For Next Administration

November 21, 2008 8:11 a.m. EST

Washington, D.C. (AHN) - A few weeks back, runaway prices were the headache of government officials and consumers. Gasoline reached $4 a gallon, food prices were galloping and cost of many commodities became out of reach.

With the crash of the stock and financial markets, consumers cut spending. By September, prices began to soften. Today, the next major threat to the incoming administration is no longer inflation, but its opposite - deflation.

While households will surely rejoice with the falling prices, economists warned sustained deflation would also be bad for the U.S. Deflation is characterized by delayed debt payments and purchasing decisions because consumers are waiting for prices to further go down amid fears times would still be harder.

The last time the U.S. experienced a prolonged deflation was during the Great Depression.

Among the business sectors hit hard by depressed prices are garment manufacturers. While the latest consumer price index report said apparel prices dipped 1 percent in October, the sector have been under extreme pressure the past 15 years due to the entry of cheap clothing from other countries. What worsens the situation for garment producers are a large reduction in demand for clothing.

According to the Labor Department, prices of consumer goods and services slipped to record-high levels the past month, while another government report said home buildings was down again for the fourth consecutive month, the lowest level in almost five decades.