17 Dec 2008

US consumer prices tumble 1.7%

4:31 pm on 17 December 2008

Consumer prices in the United States plummeted in November as the recession-hit economy lost further momentum.

The Labor Department said the Consumer Price Index dropped 1.7% after falling 1% in October.

It was the second straight month of record declines since monthly data began in 1947, led by plummeting energy prices.

Core prices, which exclude food and energy items, were flat in November after declining 0.1% in October.

On a year-on-year basis, core prices were up 2% in November, a level that normally would please US central bank policy-makers, but prices still appear to be headed down.

House building was also in decline. Commerce Department figures show housing starts dropped 18.9% to an annual rate of 625,000 units compared with 771,000 units in October.

It is the lowest since the department started collecting monthly starts data in 1959, and well below the 740,000-unit pace that Wall Street analysts had expected.

Soaring foreclosures and a drop in home building already has helped produce the worst financial crisis in decades and tipped the economy into recession last December.

Many economists think the downturn is worsening steeply as 2008 ends and any recovery will be delayed past mid-2009.

Meanwhile, the head of the Ford in the US is urging a swift resolution to the impasse over a bailout for the country's troubled car industry.

Alan Mulally says the uncertainty is worsening the financial crisis.

US President-elect Barack Obama is also urging further government action to boost the economy.

The Federal Reserve has reduced its main interest rate to the lowest level on record - a target range of between zero and 0.25%.

Mr Obama says the central bank has exhausted interest rates as a weapon to fight the recession, and it is now critical that the other branches of the government step up to play their part.

Mr Obama, a backer of tighter farm subsidy rules and renewable fuels from rural areas of the country, is believed to have selected a former governor from the important farm state of Iowa to be his agriculture secretary.

The nomination of Tom Vilsack is expected to be announced at a press conference in Chicago soon.

The National Farmers Union says Mr Vilsack is a great choice because he understands the threat to farmers from the recession and the potential income from renewable energy.

The next generation of biofuels is expected to use such things as wood chips and grasses, reducing "food versus fuel" friction.