Consumer Prices Drop More Than Expected

Private economists predicted further price declines in coming months as the deepening recession cuts further into consumer demand, forcing businesses to reduce prices further as they try to spur sales.

In this Oct. 11, 2008 file photo, a sign indicating a reduced price stands outside an existing home for sale near downtown Cheyenne, Wyo. (AP Photo/David Zalubowski, file)

(AP)

"With fuel prices falling further in December and the deepening U.S. economic recession applying a growing damper on most other prices, inflation is destined to ease further," predicted Michael Gregory of BMO Capital Markets.

Only a few months ago, some anticipated that the Fed would start raising interest rates to battle a prolonged surge in energy costs. But since September, the Fed's focus has switched to trying to prevent the worst financial crisis since the 1930s from pushing the country into a deeper recession.

Energy prices fell by 17 percent in November, nearly double the 8.6 percent decline in October. Both declines represented record drops. Gasoline costs fell by a record 29.5 percent in November, while home heating oil costs were down 14.6 percent and natural gas prices were off 5.2 percent.

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Food costs posted a modest 0.2 percent rise in November, the smallest increase in eight months.

The 1.7 percent decline in consumer prices was larger than the 1.2 percent drop that economists had been expecting. It left inflation rising over the past 12 months by 1.1 percent, the smallest 12-month increase since June 2002. Inflation has not risen at a slower pace since a 1 percent rise in the 12 months ending in February 1965.

New car costs fell by 0.6 percent in November, underscoring the troubles facing auto companies as demand plunges in the weak economy. General Motors Corp., Chrysler LLC and Ford Motor Co. are appealing for a government lifeline, and the Bush administration has said it is considering what type of support to provide.

Airline prices fell by 4 percent in November, reflecting the big declines in fuel prices, while clothing costs were up 0.3 percent, a rise that followed a 1 percent drop in October.

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