Inflation goes negative amid drop in fuel prices; A local consumer price index is on track for its first full year of deflation.

The Denver Post

Collapsing energy and transportation prices quenched inflation in the metro area in the first half of 2009, according to a report Friday from the U.S. Bureau of Labor Statistics.

The consumer price index for Denver-Boulder-Greeley decreased 0.6 percent between the first half of 2008 and the first half of 2009.

Inflation ran at a hot 3.9 percent rate last year.

But collapsing energy prices and the downward pressure on prices from the recession have put the index on track to record its first full year of negative inflation, or deflation, since it started in 1965.

About half of the decline was due to a 10.8 percent drop in transportation costs, BLS regional commissioner Stanley Suchman noted in the report.

That drop was fueled by a record-setting 39.3 percent drop in motor fuels, he said.

A 25.7 percent drop in natural-gas prices helped keep housing costs level in the first half.

Comparing the second half of last year with the first half of this year, local consumer prices were down 1.7 percent.

"That gives you some justification as to why the second half will be negative," said Rudy Andras, an economist with RBC Capital Markets in Denver. "I would be surprised if the full 2009 year did not decline."

Friday's inflation report will lower the state's minimum wage, which is adjusted each year based on the first-half consumer price index, said Rich Jones, director of policy and research for the Bell Policy Center in Denver.

The state's minimum wage will fall from $7.28 per hour this year to $7.24 next year, based on the 0.6 percent decline in the index.

Most employers, however, can't go below the federal minimum wage of $7.25 per hour.

"You are talking about people who are the lowest-paid people and the most vulnerable," Jones said. "It does make a difference."

He is urging employers to not cut current minimum wages even though they will have the right to do so in January.

In most years, negative inflation would also cause havoc for state and local governments whose revenues are capped by TABOR limits. But the recession has caused a sharp drop in tax revenues collected, making that less of an issue.

Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com