CPI numbers came down a seasonally adjusted 1% month over month, the largest single period decline since the index was first tracked in 1947. Although declining commodity prices had been widely factored in by the market, the deflationary pressure appears to be exceeding the expectations of most economists as CPI excluding food and energy, core CPI, fell for the first time since the index was adjusted in 1982.

The specter of real deflation probably wasn’t the driving force behind the sell-off in futures this morning and the drop in housing starts will likely get a lot more attention in the media, but we will keep our eye on any evidence that suggested we are witnessing the start of systemic deflation.

Hank Paulson and Ben Bernanke still have control of the pump and the needle for the next 60 days, it remains to be seen how fast and high the ball will bounce after they hand it off to the new team on the bench.

Andrew Barber