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Last Updated: Thursday, 16 November 2006, 14:37 GMT
US prices fall for second month
US shoppers walking out from a supermarket
Food and energy costs are the key drivers of inflation
US consumer prices fell in October on the back of cheaper oil, the second month in a row prices have dropped.

The Labor Department said that prices fell by 0.5% in October, more than many analysts had forecast. The annual inflation rate was 1.3%.

Energy costs, and in particular oil prices that had surged on political tensions and supply problems earlier in the year, were down by 7% in October.

The fall in prices probably would not see interest rates cut, analysts said.

Comforting figures

US interest rates have risen over the past two years as the world's largest economy has recovered and price growth has picked up.

The Federal Reserve, the US central bank, has kept interest rates on hold at 5.25% since August, and analysts said it was now unlikely to change its stance at its last meeting this year.

"A deceleration in inflation is a sign that the economy has good growth potential," said Steven Wieting of Citigroup.

October's figures will "be comforting for the Fed, but they'll need more than one month's data", he said.

In separate data, the Fed said that industrial production had edged ahead in October - despite a 3.9% fall in auto production.

Overall industrial output - from factories, mines and utilities - climbed 0.2% after a 0.6% slump in September.

One reason for caution at the Fed over rate changes while the economy is doing well may be that core inflation, which does not include volatile food and energy prices, rose by 0.1%, the Labor Department figures showed.

The annual rate of core inflation was 2.7% last month, it added

There also have been fears of a house price bubble, and analysts said the Fed may be keen to take some steam out of the market before lowering borrowing costs again.

"I don't think this type of figure argues for a rate cut anytime soon, but the Fed can sustain this pause for an extended period," said William Sullivan, of JVB Financial Group.


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