Cheaper gas fuels biggest drop in consumer prices in 61 years

Consumer prices plunged in October by the largest percentage in 61 years as gasoline costs dropped by a record amount.

The U.S. Labor Department said Wednesday that consumer prices fell by 1 percent last month, the biggest one-month decline on records that go back to February 1947. The drop was twice as large as the 0.5 percent decline analysts expected.

The drop reflected huge declines in energy costs as well as in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in more than a quarter-century.

The big retreat in consumer prices reflects a staggering turnaround from the summer, when a surge in energy costs raised concerns that inflation could spiral out of control. Meanwhile, the nation continues to struggle with its most serious financial crisis in a generation.

Despite the historic drop in October, consumer prices have risen by 3.7 percent over the past 12 months. That’s still well below a 12-month increase of 5.6 percent recorded this summer. Core prices are up 2.2 percent over the past 12 months.

Experts say this latest reading on consumer prices gives the Federal Reserve a reason to cut interest rates again. The central bank is expected to cut the federal funds rate, interest that banks charge each other, from 1 percent, to 0.5 percent, at its December meeting. The 1 percent funds rate ties the record low for the past half-century.

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