The Labor Department said on Wednesday that consumer prices fell 1 per cent last month, the biggest one-month decline on records that go back to February 1947. --PHOTO: AGENCE FRANCE PRESSE
WASHINGTON - CONSUMER prices in the US plunged by the largest amount in the past 61 years in October as gasoline pump prices dropped by a record amount.
The Labor Department said on Wednesday that consumer prices fell 1 per cent last month, the biggest one-month decline on records that go back to February 1947. The drop was twice as large as the 0.5 per cent decline analysts expected.
The big drop reflected not only a huge fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell 0.1 per cent last month, the first drop in core prices in more than a quarter-century.
The big retreat in consumer prices reflects a remarkable turnaround from just a few months ago when a relentless surge in energy prices raised concerns that inflation could get out of control.
Since that time, the economy has been jolted by the most serious financial crisis in seven decades, and the turbulence is expected to push the country into a severe and prolonged recession.
The US troubles have quickly spread overseas, depressing growth around the world and cutting into demand for oil and other products, a development that has resulted in sharp declines in the price of crude oil and other commodities.
While some are worried that the price retreat could raise the prospect of a deflation, a prolonged bout of falling prices, most economists believe that current conditions are not likely to set the stage for such a development. Severe deflation last occurred in the US during the Great Depression.
Over the past 12 months, consumer prices have risen by 3.7 per cent, substantially below the 17-year high of a 12-month price increase of 5.6 per cent set this summer. Core prices are up 2.2 per cent over the past 12 months.
This price moderation is giving the Federal Reserve the room it needs to cut interest rates to battle the economic slump.
The central bank is expected to cut the federal funds rate, the interest that banks charge each other, down to 0.5 per cent at its December meeting, even lower than the 1 per cent where the funds rate stands currently. The 1 per cent funds rate ties the record low for the past half century. -- AP
