Inflation falls by record 1% last month

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Consumer prices plunged by 1 percent last month — the biggest drop on record — thanks to a gigantic drop in the price of gasoline, the Labor Department reported Wednesday morning.

Energy prices plummeted at a 43 percent rate in the last three months as average pump prices collapsed from nearly $4 a gallon to under $2 a gallon in many areas of the country. That lowered transportation costs for Americans by 26 percent, the department said.

The plunge in prices last month comes on top of two months where inflation made no appearance at all thanks to the unprecedented retreat in oil prices since reaching a record high over $147 a barrel in mid-July, according to the department.

“Deflationary forces continue to exert their influence,” said Bob Andres, chief investment strategist at Portfolio Management Consultants.

He noted that the deep recession around the world, which appeared to start this summer, has forced a major retreat in oil and other commodity prices that had spiraled to ever-higher levels earlier this year. Rising unemployment and declining jobs means consumers everywhere have less money to spend on these goods, causing their prices to drop.

The sharp decline in energy prices eases inflation pressures in many other areas. Clothing prices also dropped last month by 1 percent, while housing prices came to a rare standstill and prices even in normally robust areas like medical care and education rose by a subdued 0.2 percent.

The major decline in inflation is a welcome development for consumers battered by stagnant incomes and the threat of job cuts. As recently as August, high gas prices were the number one consumer complaint in the United States, but that has now been replaced by worries about a recession.

In further fallout from this fall’s economic crisis, the Commerce Department reported Wednesday morning that new construction starts on houses fell to a record low of 791,000 units.

The dramatic fall in prices combined with severe weakening in the economy means “the Federal Reserve will not be worried about inflation prospects” and likely will cut interest rates by another half point next month, said Sam Bullard, economist at Wachovia Securities.

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