Wholesale prices, helped by sharp decreases for energy and new cars, plunged 1.6 percent last month in the biggest decline in more than a half-century of record keeping. Analysts said recession in the United States would keep the lid on inflation for many months to come.
The bigger-than-expected drop Friday in the Labor Department's Producer Price Index highlighted one of the few benefits a weakening economy can provide.
"The worsening downturn in industrial activity has spilled over into a general recession that is driving down prices," said Jerry Jasinowski, president of the National Association of Manufacturers.
Wall Street was encouraged. The Dow Jones Industrial Average closed up 20.48 points at 9,608.00, just above its close Sept. 10, the day before the terrorist attacks.
October's PPI decrease, four times what analysts had been expecting, was the largest drop since the government began tracking wholesale inflation in 1947. Prices had been up 0.4 percent in both August and September.
Excluding food and energy, inflation at the wholesale level was down 0.5 percent. This drop reflected a 4.7 percent plunge in new car prices, the biggest one-month decline in 29 years, reflecting heavy discounting last month to move a backlog of unsold cars.
So far this year, prices at the wholesale level have been declining at an annual rate of 0.8 percent, a turnaround from the 3.6 percent increase last year.
Economists said the report showed an absence of price pressures not only at factories, farms and other producers of finished goods but also at earlier stages in the production pipeline, with costs dropping by 1.5 percent for intermediate goods and a steep 9.1 percent for crude goods.
"There's absolutely no pressure in the pipeline," said Oscar Gonzalez, an economist at John Hancock in Boston. "Producers have no pricing power at all. For consumers and the broader economy, that is good news."
Analysts said consumers should find plenty of bargains as the holiday shopping season opens _ and for months to come if demand slumps.
Even before the Sept. 11 terrorist attacks, the economy had endured a yearlong economic slowdown. But signs of weakness have grown dramatically since the attacks, with 415,000 Americans laid off in October alone, the biggest one-month drop in payroll employment in 21 years.
While many analysts believe the economy will begin to show signs of life by the spring, Michael Evans, chief economist at American Economics Group in Washington, said he was looking for the downturn to last through the first six months of next year, with economic growth declining this quarter and the next two at annual rates of about 2 percent. The economy turned negative with a 0.4 percent drop in activity in the July-September quarter.
Evans said he believed the recession and a sluggish rebound would keep consumer prices rising by just 2 percent through next year and probably 2003. That would compare with a 3.4 percent increase in consumer prices last year.
Declining inflation pressures will give the Federal Reserve more room to cut interest rates to jump-start economic growth, analysts said. The Fed cut rates for a 10th time Tuesday, and many economists are predicting an 11th rate cut at the Fed's final meeting of this year Dec. 11.
The big drop in wholesale prices in October was led by a 7.7 percent plunge in energy prices, the biggest decrease in 12 years. Gasoline prices fell 21.2 percent, the biggest one-month drop in 15 years.
With many Americans cutting back on their travel plans in the wake of the terrorist attacks and the anthrax threats, the average price of a gallon of gasoline is $1.24 _ down by about 30 cents from a year ago _ and has fallen below $1 in some parts of the country.
The PPI report showed that natural gas prices, which had soared because of short supplies last winter, fell by a record 6 percent in October. Analysts are predicting that natural gas will be about one-third cheaper this winter than last, good news for the 55 percent of Americans who heat with natural gas.
Home heating oil prices also fell dramatically, dropping 20.9 percent, the biggest decline since February 1990, when the country was in the depths of the last recession.
The Labor Department said food prices were also down last month at the wholesale level, dropping 0.4 percent.