Consumer Prices Pluged by Record 1.7% in November

From Yahoo! Finance: Consumer prices drop more than expected

Prices fell 1.7 percent, surpassing the previous record decline of 1 percent set in October. It was the largest one-month decline dating to February 1947. Core inflation, excluding food and energy, was flat in November after a 0.1 percent drop in October.

Falling prices for goods and services might sound like a good thing for consumers, but a continued downward spiral can wreak economic havoc. During deflationary periods, companies earning less react by slowing production and cutting jobs, which causes consumers to scale back spending even more. The pattern is hard to stop because it feeds on itself.

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.

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.

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.

The Producer Price Index for Finished Goods fell 2.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decline followed decreases of 2.8 percent in October and 0.4 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods dropped 4.3 percent in November after falling 3.9 percent in the prior month, and the crude goods index declined 12.5 percent subsequent to an 18.6-percent decrease in October.