WASHINGTON - Wholesale inflation plunged by the largest amount in more than three years in September as a record drop in gasoline prices offset higher costs for cars and other items. And in a sign of a slowing economy, industrial output dropped by the largest amount in a year.
The Labor Department reported that wholesale prices overall fell 1.3 percent last month, nearly double the decline that analysts had been expecting. Gasoline prices plummeted 22.2 percent, the biggest one-month decrease on record.
In a second report, the Federal Reserve said that industrial output dropped by 0.6 percent in September, reflecting declining production at the nation's factories and a big drop in utility output as cooler September weather cut electricity production.
It was the first drop in industrial production since January and the biggest fall since a 1.3 percent plunge in September 2005 which resulted from widespread shutdowns following Hurricane Katrina.
While the overall inflation performance was much better than expected, core inflation, which excludes energy and food, jumped by 0.6 percent in September, the biggest increase in this area in 20 months. Much of that gain was due to a jump in new car prices, which had been falling previously because of the widespread use of attractive incentives aimed at moving a backlog of unsold cars.
The 0.6 percent fall in industrial production in September was a much bigger decline than the 0.1 percent dip that Wall Street had been expecting. It followed no change at all in August as the nation's factory sector signaled it was slowing production in response to the overall economic slowdown.
Financial markets are hoping that a slowing economy and recent sharp declines in global oil prices will help to lower inflation pressures in coming months and keep the Federal Reserve from pushing interest rates higher.
After raising rates for a record 17 consecutive times, the Fed left rates unchanged at its August and September meetings. The Fed meets again next week and economists widely expect no change at that meeting either.
For September, the 22.2 percent drop in gasoline prices was the biggest decline on record, surpassing the old mark of a 22.1 percent drop in March 1986. Since peaking above $3 per gallon in early August, gasoline prices have fallen by more than 70 cents.
The price of home heating oil was down 18.5 percent in September although residential natural gas prices rose by 1.8 percent.
Overall energy costs were down 8.4 percent, the first drop at the wholesale level since last February, and the biggest decline since July 1986.
Food costs rose by 0.7 percent last month as pork prices shot up by 8l.1 percent, the biggest gain since September 1999. The price of fish and rice also increased while the cost of turkeys fell by the largest amount in 15 years.
Excluding energy and food, the 0.6 percent rise in core inflation was the biggest since a similar 0.6 percent rise in January 2005.
The gain reflected a 2.8 percent jump in new car prices, the biggest increase in 16 years, and a 3.5 percent rise in light trucks, the category that includes sport utility vehicles and vans. That was the biggest jump in that area since 21 years. Analysts, however, noted that prices in these areas had been falling because of dealer incentives in previous months.
Prices were also up for alcoholic beverages, men's clothing and mobile homes.