US cost of living has record fall

By Bob Willis  |   2008-11-20  |     NEWSPAPER EDITION

THE cost of living in the United States dropped in October by the most on record as fuel costs plummeted and retailers discounted automobiles and clothing to entice shell-shocked consumers.

Consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said in Washington. Excluding food and energy, so-called core prices unexpectedly fell for the first time since 1982, Bloomberg News reported.

A recession that may become the worst in decades has raised the risk that deflation, or a prolonged decline in prices, would be another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama.

Target Corp is among retailers cutting prices in an effort to lure away cash-strapped holiday shoppers from Wal-Mart Stores Inc.

"Disinflation is now moving through the system," said Joseph Brusuelas, chief economist at Merk Investments LLC in Palo Alto. "We expect to see prices coming down more broadly in coming months. There's an enhanced risk of deflation."

Prices increased 3.7 percent in the 12 months to October, the smallest year-over-year gain since October 2007.

The core rate increased 2.2 percent from October 2007, after a 2.5-percent year-over-year increase the prior month.

Inflation impact

Energy expenses dropped 8.6 percent, the most since 1957. Gasoline prices fell 14 percent, the biggest decline in four decades.

Gasoline has kept falling this month. A gallon of regular gasoline at the pump averaged US$2.07 on Monday, down from an October average of US$3.08, according to AAA.

"We are seeing the fallout of global recession on inflation," said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts. "In commodity prices, it's leading to deflation."