Consumer Prices Fall for 2nd Month

The Labor Department reported Thursday that consumer prices dropped by 0.5 percent last month, matching the September decline. It was the first back-to-back drops in the Consumer Price Index since late last year and provided evidence that inflation pressures are beginning to ease.

Meanwhile, industrial production edged up slightly in October even though output at auto factories fell for a second straight month.

The Federal Reserve reported that industrial output rose by 0.2 percent last month following a big 0.6 percent plunge in September. However, auto production was down 3.9 percent last month as automakers continued to struggle to get control of a huge backlog of unsold cars.

In a third report, the number of Americans filing claims for unemployment benefits dipped by 2,000 last week to 308,000, the lowest level in a month, indicating that the labor market remains healthy in spite of the slowing economy.

The second 0.5 percent fall in consumer prices was better than the 0.3 percent dip that many analysts had been expecting. And core inflation, which excludes volatile energy and food prices, was also well-behaved, rising by just 0.1 percent, the smallest gain in eight months.

The news on inflation was certain to cheer officials at the Federal Reserve. They are hoping that 17 consecutive interest rate increases will produce a soft landing for the economy in which business growth slows enough to reduce inflation pressures without threatening a recession.

Fed officials hold their last meeting of the year on Dec. 12 and private economists are forecasting that the central bank will leave rates unchanged at that meeting and will probably stay on hold for at least the first half of 2007.

The slowdown in inflation provided a boost to Americans' weekly incomes, which were up by 3.3 percent in October compared to a year ago, after discounting inflation. That was the biggest 12-month increase in eight years and followed a period of extremely sluggish wage growth, which Democrats said in the recent elections showed that Republican economic policies were failing the middle class.

Republicans, who lost control of both the House and Senate to the Democrats, countered that wage growth was poised to pick up with unemployment falling to five-year lows.