Consumer Prices Plunge in October as Energy Costs Fall

The Labor Department reported Wednesday that the consumer price index fell by 1 percent last month, the biggest one-month decline on records that stretch back to February 1947.

The drop was twice as large as the 0.5 percent decline some analysts expected, the Associated Press reported.

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, new figures show. Analysts say further drops are likely in the months ahead as retailers struggle to attract consumers concerned over rising unemployment and the economic crisis.

Energy prices plunged 8.6 percent in October, reflecting a broad nationwide drop in gasoline prices. According to the Labor Department's report, fuel prices continued to decline last month, with the gasoline index falling 14.2 percent.

Food costs rose 0.3 percent in October, showing just half the increase of September. Food prices are still 6.1 percent above where they were a year ago, reflecting big increases in past months as grocery stores hiked costs to reflect the higher cost of transportation.

The big fall in consumer prices represents a dramatic shift from just a few months ago when a surge in energy prices raised concerns that inflation could get out of control as the country grappled with upheaval on Wall Street and worldwide credit markets.

"It appears we are in a period of disinflation right now, where the actual level of inflation is trending lower," Michael Sheldon, chief market strategist for RDM Financial in Westport, Conn., told Reuters. "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."

Still, some analysts told Reuters that earlier inflation fears may soon be replaced by concerns over deflation, which also has a negative impact on the economy's performance.

In a separate development, the Commerce Department reported that construction of new homes and apartments fell by 4.5 percent in October to an annual rate of 791,000 units. That was the slowest construction pace on records going back to 1959 and highlighted the continued troubles in the housing industry, the AP reported.