Producer prices post record drop

WASHINGTON — Wholesale prices plunged at a record pace in October, led by big declines for gasoline and new cars, while retail sales slid for a second straight month.

Producer prices fell 1.6% in October, tying the record decline set in October 2001, the Labor Department reported Tuesday. Core prices, excluding energy and food, were also well-behaved, falling by 0.9%, the biggest retreat in 13 years.

Meanwhile, retail sales dropped by 0.2% in October after a 0.8% decline in September. But much of the weakness in both months came from the big drop in energy prices, which depressed the dollar level of sales at gasoline stations.

Excluding the drop at gasoline stations, retail sales rose by 0.4% last month as strength in auto sales offset weakness at department stores and hardware stores.

Analysts said they believed that the strength in employment, with the jobless rate at a five-year low of 4.4%, meant that consumer spending in the all-important holiday season would be supported by income growth and the drop in gasoline prices, which would give Americans more to spend on other items.

“Despite all the angst about a slowing economy, I don’t think Santa will be laying off any reindeer,” said Bill Cheney, chief economist at John Hancock Financial Services.

For October, sales at auto dealers rose by 0.6% after a 0.7% increase in September. But sales at department stores fell by 0.3%, while sales at specialty clothing stores managed only a 0.1% increase.

The retreat in core prices at the wholesale level is likely to be welcomed at the Federal Reserve, where policymakers are hoping that a string of 17 consecutive rate hikes will slow the economy enough to cause a decline in inflationary pressures, which had risen above the Fed’s comfort zone.

The central bank has left rates alone since August and analysts believe that there will be no change when the Fed meets for the last time this year Dec. 12.

William Poole, president of the Federal Reserve Bank of St. Louis, said Tuesday that the odds of another rate hike were about the same as a rate cut, but he believed that the current policy position was “about right.”

Car and truck prices, which had driven core prices up in September, retreated in October as dealers brought back sales incentives to move a huge backlog of unsold cars. The category that includes sport utility vehicles fell by a record 9.7%, while the price of passenger cars was down 2.3%.

Excluding the decline in vehicle prices, core inflation would still have been modest, rising by 0.1% in October.

Energy prices dropped by 5% last month after an 8.4% fall in September. Gasoline prices were down 7.9%, while natural gas prices fell by a record 9.3%.