Wednesday, November 19, 2008
WASHINGTON (Reuters) – Consumer prices dropped at the fastest rate on record in October and new home construction was at a record low, according to government reports on Wednesday that underlined how rapidly the economy was weakening.
The Labor Department said its widely watched Consumer Price Index plummeted 1 percent, exceeding forecasts by Wall Street analysts for a 0.8 percent decline and the biggest drop since the department began monthly data in 1947. Core prices, which exclude food and energy items, declined 0.1 percent in contrast to the 0.1 percent advance that had been forecast.
Analysts said earlier concern about inflation risks may soon be replaced by worry about deflation, which also has a corrosive effect on the economy’s performance.
Separately, the Commerce Department said new-home starts fell 4.5 percent last month to a seasonally adjusted annual rate of 791,000 units and building permits — which signal future building intentions — dropped 12 percent to 708,000.
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Many economists think the U.S. economy already is in recession even though one has not yet been formally declared. A severe global credit crunch that has sapped demand for commodities and hurt consumers has already driven parts of Europe and Japan into recession.
“It appears we are in a period of disinflation right now, where the actual level of inflation is trending lower,” said Michael Sheldon, chief market strategist for RDM Financial, Westport, Connecticut. “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.”