Prices have been falling quickly in the US economy for the last four months but it is not clear that “deflation” is underway. Price may be only adjusting over about six months to the end of the commodity boom and the onset of a deepened recession. If so, prices indexes will be rising modestly again from early in 2009. Or deflation may be underway, defined as an extended period in which prices for most items decline continuously. If so, we need to rethink how we look at economic data reports and remodel consumer and business behavior.

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