In the 45 years the federal government has tracked consumer prices in the Denver, Boulder and Greeley metro areas, there has never been a full year of falling prices or deflation.
That changed in 2009.
The Denver-Boulder-Greeley Consumer Price Index, which tracks a basket of consumer goods and services, fell 0.6 percent last year, driven by sharp declines in gasoline, natural gas and food prices, according to a release Friday from the U.S. Bureau of Labor Statistics.
“The declines in the CPI are consistent with the sharp downturn in the economy that we’ve experienced,” said Natalie Mullis, chief economist with the Colorado Legislative Council.
Prices fell so sharply in the first half of 2009 that they made declines for the full year almost unavoidable, said Rudy Andras, an economist with RBC Capital Markets in Denver.
Declines in housing, food and transportation, which account for 70 percent of the index, continued into the second half of 2009.
Lower energy prices pushed transportation and housing costs lower. What really surprised observers was a 5.4 percent drop in the cost of food eaten at home.
“That was a record-setting decline for food prices,” said Linda Nickisch, economist with the Labor Department in Kansas City, Mo.
A drop in agricultural prices, which were caught up in the commodity run up of 2008, explains some of the decline. But Andras suspects intense competition among area grocery stores pushed food prices even lower.
Restaurant prices, by contrast, rose 1.2 percent in the second half of the year, while getting a stiff drink at a bar cost 4.5 percent more.
The five items that make up the remaining 30 percent of the index, including medical care, education and recreation, all rose in the second half.
The local index flirted with deflation in the first half of 2004 and before that in the 12 months ended July 1986 during the oil bust. But in no full calendar year had prices fallen. Denver’s 0.6 percent decline last year compares with an overall U.S. decline of 0.4 percent.
Deflation may prove short-lived. U.S. consumer prices rose 0.2 percent in January from December and are up 2.7 percent year-over-year, mostly because of higher energy prices, according to a report released Friday.
Absent energy items, the “core” U.S. CPI, however, fell 0.1 percent for the month.
Many groups watch the CPI number closely. Union contracts often tie salary increases to inflation, as do some child-support and alimony agreements.
More than half of Colorado employers, an unprecedented number, said they planned to freeze wages in 2009, said Patty Goodwin, director of surveys for the Mountain States Employers Council. The deflationary reading means those wage freezes won’t hurt employees as much as if prices had skyrocketed.
