U.S. consumer prices fall sharply
November 19, 2008
Consumer prices fell more than anticipated in October with the headline inflation rate falling 1%, a bigger decline than the 0.8% expected by forecasters. The year-over-year rate moderated to 3.7% from 4.9% in September. Core prices were also weaker than expected falling 0.1% rather than rising a projected 0.1%, with the year-over-year rate slipping to 2.2% from 2.5%.
Gasoline prices dropped 14.2% in October following September's more modest 0.6% decline, although prices were still 12% higher than in October 2007. Housing costs were flat and apparel prices slipped by 1%. Prices for new vehicles fell 0.5% in October on a seasonally adjusted basis contributing to the sharp 5.4% drop in the transportation component.
With the economy in recession and commodity prices slipping, it is no surprise that the annual rate of increase in the inflation rate has fallen sharply from the recent peak in July of 5.6%, a 17-year high. Furthermore, the earlier strong annual increases did not translate into a noticeable pick-up in core prices with the annual core inflation rate trading in a range of 2.25% to 2.5% during this period and in October moving even lower to 2.2%, the slowest pace in a year.
Both the core and headline inflation rates are likely to continue to drift lower reflecting the impact of slowing growth, easing labour market conditions and lower commodity prices. For the Fed, the prospect of lower inflation, a deepening recession and persistent tightness in credit conditions will keep the debate alive regarding further rate cuts. At a minimum, the policy rate will be kept at a stimulative 1% during the 12 months ahead, supplemented by policy actions geared to directly address distressed areas of the financial system as they emerge.
U.S. housing starts still falling
Housing starts fell 4.5% in October to an annualized 791,000 unit pace, slightly stronger than the consensus forecast for 780,000 units. Building permits were much weaker than expected, slumping 12% to 708,000 and pointing to further weakening in construction activity.
Dawn Desjardins, Assistant Chief Economist, RBC Economics Research
To view charts of today's data, go to
http://www.rbc.com/economics/html_calendars/ca/calendar.html (Canada)
http://www.rbc.com/economics/html_calendars/us/calendar.html (United States)
RBC Economics Research contacts:
Paul Ferley, Assistant Chief Economist
Dawn Desjardins, Assistant Chief Economist
Josh Heller, Economist
Go to Financial Markets Daily (pdf) for a daily summary of U.S. interest rates and foreign exchange rates.
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