Falling Prices Point To A Struggling Economy

Economists say falling prices are a sign that the economy isn't doing well. Slowing consumer demand is behind the fall in oil prices, which are heading toward $50 a barrel. The government reported Wednesday that prices for consumer goods are eroding at a record pace. A short while ago, inflation seemed to be the danger. Economic policymakers now are fretting about deflation.

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STEVE INSKEEP, host:

NPR's business news starts with prices falling everywhere.

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INSKEEP: We've been getting reports this week of negative inflation, which sounds like good news, falling prices. But economists say it's not. It's a sign of our struggling economy, sort of like a going out of business sale. Falling consumer demand is behind the continued fall in oil prices, which are now heading toward $50 a barrel. Remember when they were way over a hundred? Prices for consumer goods are eroding at a record price, according to a report out yesterday from the Labor Department. Asian stock prices fell sharply today. Japan's Nikkei index and South Korea's KOSPI both slid nearly seven percent. European stocks were also down. And this comes after another rotten day for the U.S. stock market. They fell to five-year lows and dragged the Dow Jones industrial average below 8,000. NPR's Jim Zarroli has our report.

JIM ZARROLI: Auto executives went to Congress yesterday to ask for a government bailout, but the response they got was so discouraging that their stock prices fell sharply. Ford fell 25 percent to $1.26 a share. General Motors dropped to a price not seen since the middle of World War II. Also losing a lot of ground was Citigroup. The company eliminated more than 55,000 jobs this week in an effort to persuade investors it was getting its fiscal house in order, but the effort seems to have failed. The company's shares fell to a 13-year low.

Those weren't the only things pushing stocks down yesterday. There were disappointing reports about consumer prices and housing construction. But prices really fell in the afternoon, following the release of the minutes of the Federal Reserve's October 29 meeting. The report suggests that Fed officials had become much gloomier about the economy. They now expect unemployment to rise as high as 7.6 percent next year. It was 6.5 percent last month. Jim Zarroli, NPR News, New York.

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Consumer Prices Fall By Largest Amount Since 1947

Consumer prices dropped in October at their steepest rate in more than six decades, led by a dramatic decrease in energy costs as the nation's economy teetered on the edge of recession, a government report said Wednesday.

The Labor Department reported that consumer prices fell by 1 percent in October, a rate double what many analysts had expected. It was the biggest one-month dive for the index since it was first compiled in 1947.

Most of the decrease came from energy — which dropped 8.6 percent in October. Declines in airline fares and the price of apparel and autos also contributed to the overall price declines.

Excluding energy and food, the core consumer price index fell 0.1 percent.

It represented a stark turnaround from just a few months ago, when oil prices climbed to record levels nearly three times where they are now. As consumers cut back on spending, prices were expected to continue their downward spiral.

Many retailers are offering deep discounts ahead of the holiday season to attract consumers who are being battered by rising unemployment and the weak economy.

The recent drop has been offset by previous dramatic increases that have sent consumer prices up 3.7 percent in the past year.

The Federal Reserve could use the deflationary signs as an impetus to cut interest rates to battle the economic slump.

The federal funds rate already stands at a record low 1 percent, but the central bank is expected to cut the rate further, to 0.5 percent at its December meeting.

The drop in inflation also means a boost in workers' spending power. But average weekly wages, adjusted for inflation, were still down 0.9 percent from a year ago.

From wire reports

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