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After spike in spring, inflation pressures ease

WASHINGTON — Inflation may have peaked after surging in the spring.

Americans paid less for gas, cars and computers last month as overall prices fell for the first time since June.

The Consumer Price Index dropped 0.1 percent in October, the Labor Department said Wednesday. A steep drop in gas prices led the decline. Food prices rose, but at the slowest pace this year.

Excluding volatile food and energy costs, so-called "core" prices inched up 0.1 percent. The cost of renting an apartment rose, as did prices for health care products and services.

The trend, if it can be sustained, will provide relief for consumers. It will also give the Federal Reserve more leeway to take further steps to stimulate the economy without igniting high inflation.

Consumer prices rose 3.5 percent in the 12 months ending in October. That's down from a 3.9 percent pace in the 12 months ending in September. Core prices have risen 2.1 percent in that stretch.

Paul Ashworth, an economist at Capital Economics, said he expects the increase in the overall price index to fall to 3 percent by the end of this year and even lower next year.

One factor in inflation this year has been that farm commodity prices rose in the spring because of growing demand overseas. Corn prices reached a record $7.99 a bushel in June. That pushes up a range of prices on grocery store shelves because corn is used in everything from cereals to sodas. It is also used as animal feed.

But the costs of corn and other grains have also declined since summer because healthy harvests have boosted supplies. That's now limiting price increases on grocery shelves.

October's increase in food prices was the lowest in 10 months.

"In the current soft economic environment, inflation is not an issue for policymakers," said Jennifer Lee, an economist at BMO Capital Markets.

Slower inflation could boost consumer spending, which accounts for 70 percent of the economy. Retail sales rose 0.5 percent in October. Americans spent more on trucks, electronics and building supplies. That suggests the economy is continuing to grow modestly in the October-December quarter.

Still, consumers might not be able to sustain their spending growth if unemployment remains high and pay raises meager. And Europe may be on the brink of a recession, which could further slow U.S. growth next year.

More economic reports

• The National Association of Home Builders said Wednesday that its builder sentiment index rose to 20 in November, the highest level since May 2010 and only the second month the index has been at 20 or above in two years. The trade group cited low mortgage rates as a chief factor. Still, any reading below 50 indicates negative sentiment about the housing market. It hasn't reached 50 since April 2006, the peak of the housing boom.

• Output at the nation's factories, utilities and mines rose 0.7 percent last month, the Federal Reserve said Wednesday. It was the fastest growth in three months. Factory output, the largest component of industrial production, increased a solid 0.5 percent. That marked the fourth straight monthly gain. Factories made more trucks, electronics and business equipment.

After spike in spring, inflation pressures ease 11/16/11 [Last modified: Thursday, November 17, 2011 7:45am]
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