US consumer prices dropped by a record 1% in October compared with the previous month, as fuel costs fell for a third month in a row. Fuel prices were not the only reason for the record drop, as core prices, which exclude food and energy, fell for the first time since 1982. The bigger-than-expected fall in prices is being seen as a sign of the weakness in the US economy, separate figures showed that new home starts fell to a record low last month.
Commerce Department statistics said new-home starts fell 4.5% in October to an annual pace of 791,000 units, the lowest on record. Building permits, which are seen as a measure of future projects, dropped 12% to an annual rate of 708,000. Energy prices fell by a record 8.6% in October after smaller drops in the previous two months. Fuel prices plummeted 14.2%, the biggest drop on record. Food prices rose by 0.3%, analysts say that the fall in consumer prices had been anticipated by the market.
"Looking ahead, the question is will the economy rebound enough with the benefit of a big stimulus plan in 2009 to prevent deflation and get consumers spending again," said Michael Sheldon at RDM Financial. Meanwhile, Sacha Tihanyi at Scotia Capital believes that the latest inflation data "may be giving investors a little bit of confidence the Fed won't feel constrained in dropping rates even further". The US Federal Reserve cut rates twice during October, taking the key interest rate down to 1%.
On Tuesday it was reported that US wholesale prices dropped by 2.8% in October, the biggest one-month decline since records began more than 60 years ago.
Many forecasters think that the US economy is already in recession. It has already had one quarter of negative growth.
David Wyss at Standard & Poor's think that the latest inflation data is good news for the Fed, "because it says they don't have to worry about inflation, they can concentrate on fighting recession".
