This morning the BLS reported that consumer inflation fell 0.1% (seasonally adjusted) in March, (rising 0.2% NSA) meaning that year-over-year prices have fallen -0.4% into deflation. YoY consumer deflation is only surpassed by 1949 (and ever so slightly in 1954-55) in the post-Depression era. This graph, comparing CPI with PPI for finished goods and comodities (update: showing today's CPI) shows that after a brief pause, deflationary pressures deepened - ever so slightly - in March:

The series for Producer prices for finished goods only goes back to 1947. Only the deflation of 1949 surpasses present finished goods deflation:

The series for commodity producer prices, however, does go back to 1913. As can be easily seen, that deflation has now surpassed anything since the Great Depression:

(Update: Ooops! Graph order originally reversed, corrected now)
Despite the steep deflation in commodity and producer prices, and the slight deflation in consumer prices, there has been no corresponding deflationary spiral in wages. Back in January I said:

we will almost certainly know in the next 60-90 days whether or not we are starting the first full-fledged deflationary wage-price spiral in over 70 years.

Well, we are 90 days later, and here is the graph for average hourly earnings through March:

Although there have been sporadic wage cuts (especially in the deeply troubled newspaper industry), if there were to be a wage/price death spiral a la 1929=32, we would expect to see real declines in that series. This means that the ~90% of workers still employed are still a bulwark against a catastrophic Great-Depression-like meltdown.

The first quarter data is firmly in accord with the optimistic scenario I laid out in my In/Deflation outlook for 2009:

In the Optimistic scenario, the fiscal and monetary stimuli, together with intelligent new political leadership in Washington, halt the meltdown perhaps by mid-year, and wage reductions remain the exception. In the Pessimistic scenario, the stimuli fail, and wage reductions spread, leading to a wage-price deflationary spiral.

In the Optimistic scenario, monthly inflation remains positive, but perhaps at 1/3 to 1/2 the level of last year. By the end of June, first half 2009 inflation will be in the 1.4%-2.2% range. Year over year, however, as the 2008 numbers are replaced, DEflation will be realized, falling to (-2.0%) - (-2.7%) range....

In the Pessimistic scenario, monthly inflation remains near 0%-1% in the first half, and is firmly negative, though less than 2008 in the second half. By mid-year, YoY DEflation will be somewhere in the (-3%) - (-4.5%) range....

Three months later, NSA inflation for 2009 is so far at +1.1%, if anything running hotter than even the optimistic scenario. Nevertheless, if there were to be a recovery soon, we would need PPI for commodities to bottom and turn around. That hasn't happened yet. While the optimistic scenario looks more likely, we are by no means out of the woods yet.