Producer prices set record drop of 2.8% in October

Producer prices plunged in October for the third straight month and by a level never before on record, the Labor Department reported Tuesday.

The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, plummeted 2.8%. Forecasters were expecting a 1.9% reduction, which would have itself broke the last record one-month drop of 1.6% in October 2001, or right after the September 11 terrorist attacks.

Similar to September’s 0.4 % fall, diving energy prices were the key to October’s PPI decline. Energy prices plunged 12.8% in the month after falling 2.9% in September. That marks the biggest one-month drop since July 1986.

Perhaps the best news for consumers was the 24.9% drop in gasoline prices, which fell 0.5% a month earlier. The decline comes as crude-oil prices marked a 22-month low Monday at $54.95 a barrel, far from its record high near $147 per barrel in July.

The so-called core PPI number, which excludes volatile food and energy prices, rose 0.4%. That was more than the 0.1% increase analysts expected and somewhat of a larger cloud in the outlook for future inflation.

The Labor Department’s scheduled consumer price report for October will occur Wednesday at 8:30 AM. With the overall PPI drop and an expected consumer price decline of 4.0% setting an improved deflationary tone, the Federal Reserve has more leeway to lower interest rates once again in an attempt to spur the economy.

The Fed cut its benchmark interest rate by a half-percentage point on October 8 and again on October 29 in response to deterioration in the global economy.

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