Inflation in U.S. Dropped 1%


The cost of living in the U.S. dropped in October by the most on record as fuel costs plummeted and retailers discounted automobiles and clothing to entice shell- shocked consumers.

Consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said in Washington. Excluding food and energy, so-called core prices unexpectedly fell for the first time since 1982.

A recession that may become the worst in decades raises the risk that deflation, or a prolonged decline in prices, will be another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Target Corp. is among retailers cutting prices in an effort to lure away cash-strapped holiday shoppers from Wal-Mart Stores Inc.

Prices increased 3.7 percent in the 12 months to October, the smallest year-over-year gain since October 2007. They were forecast to climb 4 percent from a year earlier, according to the survey median.

The core rate increased 2.2 percent from October 2007, after a 2.5 percent year-over-year increase the prior month.

Energy expenses dropped 8.6 percent, the most since 1957. Gasoline prices fell 14 percent, the biggest decline in four decades.

Gasoline has kept falling this month. A gallon of regular gasoline at the pump averaged $2.07 on Nov. 17, down from an October average of $3.08, according to AAA.

The consumer-price index is the last of three monthly price gauges from the Labor Department. The CPI is the broadest gauge because it includes goods and services.

A Labor report yesterday showed wholesale prices fell 2.8 percent last month, the most on record. Last week, the government also said the cost of imported goods declined by the most ever.

Food prices, which account for about a fifth of the CPI, increased 0.3 percent after a 0.6 percent increase in September.

The drop in core prices reflected declines in the cost of clothing, automobiles, air fares and hotel rates. New-vehicle prices fell 0.5 percent and clothing costs dropped 1 percent. The price of airfares plunged 4.8 percent, the most since June 1999.

The cost of all services, excluding fuel, was unchanged, the first time it hadn't increased since 1982.

The benefit of the drop in prices can be seen in its effect on incomes. Today's figures also showed wages increased 1.4 percent after adjusting for inflation, following no change in September. They were still down 0.9 percent over the last 12 months. The decline in purchasing power is contributing to the slowdown in consumer spending.

Retail sales fell 2.8 percent last month, the most on record, Commerce Department figures showed last week. Mounting job losses and record foreclosures are causing American consumers, who account for more than two-thirds of the economy, to retrench.


TradingEconomics.com, Bloomberg.com
11/19/2008 5:49:42 AM