Martin Crutsinger
November 18, 2008 - 09:16 a.m.
WASHINGTON (AP) - Wholesale prices plunged a record amount in October as energy prices fell by the largest amount in 22 years.
The Labor Department reported Tuesday that wholesale prices dropped by 2.8 percent in October, the biggest one-month decline on records that go back more than 60 years. The prior history owner was a 1.6 percent fall in October 2001, the month after the terrorist attacks.
The overall fall away in the department's Producer Price Index was bigger than the 1.8 percent drop analysts had expected. However, core inflation, which excludes energy and food, was not as well-behaved, rising by a bigger-than-expected 0.4 percent.
The 0.4 percent rise in core inflation did not modify the view that plunging energy prices and a sharply slowing economy were combining to slash inflation pressures.
Analysts said much of the jump in core prices reflected the lingering impact of the huge rise in energy costs earlier in the year and should retreat in coming months as those costs continue to fall.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, predicted that core wholesale prices would retreat significantly in coming months.
The 2.8 percent overall decrease marked the third straight month that wholesale prices have fallen.
Many economists rely upon the economy has fallen into a recession that could be the discomfit downturn in more than two decades. The expectation is falling inflation pressures will give the Federal Reserve range to cut interest rates further to combat the downturn.
The Fed divide interest rates by a half-point in a coordinated move with other central banks on Oct. 8 when the turmoil in financial markets was gaining intensity and followed with any other half-point abatement on Oct. 29.
That pushed the target rate for the federal funds rate, the good that banks charge each other, down to 1 percent, matching a low seen without more formerly before in the past half-century.
Many economists believe the Fed will divide the funds rate again when officials clutch their last normal meeting of the year in continuance Dec. 16.
The PPI report showed that energy prices dropped by 12.8 percent in October, the biggest one-month fall since a 14 percent gradual wasting in July 1986.