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US consumer prices in record fall US consumer prices in record fall
(29 minutes later)
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.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.
The news sent Wall Street shares down, while European markets closed sharply lower with losses of more than 4%. The news sent Wall Street shares down 1.8%, while European markets closed with losses of more than 4%.
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 reductioin in consumer prices was the biggest monthly drop in 61 years and also reflected a significant decline in energy prices.
This bigger-than-expected fall is being seen as a sign of US economic weakness.This bigger-than-expected fall is being seen as a sign of US economic weakness.
The consumer prices figures raised investors' fears of a impending recession. The consumer prices figures have raised investors' fears of a impending recession.
On Wall Street, the Dow was down 1.8% in late morning trading. In Europe the falls were sharper, with London down 4.8%, Frankfurt 4.9% lower and Paris down 4%.On Wall Street, the Dow was down 1.8% in late morning trading. In Europe the falls were sharper, with London down 4.8%, Frankfurt 4.9% lower and Paris down 4%.
Cheaper borrowing
Over the past 12 months, consumer prices have risen by 3.7%, which is substantially lower than the 5.6% figure for a 12-monthly rise set this summer.
Economists say that this rapid fall in consumer prices is giving the US Federal Reserve the room it needs to cut interest rates to battle the economic slump.
Sacha Tihanyi at Scotia Capital said 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 central bank is expected to cut its key federal funds rate to 0.5% in December.
The Federal Reserve cut rates twice during October, taking its key interest rate down to 1%.
"This report clearly reflects the crunch in discretionary consumers' spending which is likely to persist for the foreseeable future," said Ian Shepherdson of High Frequency Economics.
"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.
'Fighting recession'
Separate figures showed that new home starts fell to a record low last month.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.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.Building permits, which are seen as a measure of future projects, dropped 12% to an annual rate of 708,000.
'Looking ahead'
Energy prices fell by a record 8.6% in October after smaller drops in the previous two months.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%.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.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.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".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".