Consumer prices drop a record 1% in October

Analysts worry that falling prices will damage the economy further.

WASHINGTON (AP) — Consumer prices 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 Wednesday that consumer prices fell by 1 percent 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 percent decrease that analysts had been expecting and marked the third straight month that prices had either fallen or been unchanged.

The worry is that the recession, which many analysts believe will worsen in coming months, will further depress prices, hurting such industries as housing, autos and retailing, and contribute to a downward spiral that will feed on itself.

A separate report Wednesday showed that the woes in housing, where the economic troubles began two years ago, have yet to ease. Builders slashed construction of new homes and apartments to a seasonally adjusted annual rate of 791,000 units in October, the slowest building pace on records that go back nearly 50 years.

With the economy sliding into a recession and mortgage foreclosures continuing to rise to record levels, there was little prospect of a rebound any time soon. Analysts noted that the National Association of Home Builders reported this week that builder confidence plunged to a record low in November, reflecting the gloom that pervades the housing sector.

The big drop in inflation 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 by 0.1 percent last month, the first drop in core prices in more than a quarter-century.

There were price declines for clothing, new and used cars, and airline fares. Analysts predicted further declines in the months ahead as retailers struggle to attract consumers who are being battered by rising unemployment and the weak economy.

The big retreat in consumer prices represented 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. The U.S. 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 falling prices especially for such key products as gasoline can provide a break for consumers, analysts said the worry is if price declines become so entrenched that consumers stop buying things, awaiting further price drops. That is one of the problems facing housing as buyers in some markets stay on the fence, expecting home prices to drop further.