CPI Falls Record 1%, Housing Starts Dive; Fed Fears Deflation?

By BRAD KELLY

INVESTORS BUSINESS DAILY – 20 Nov. 08

Huge sell-off on Wall Street. 1%, biggest drop on records that go back to 1947.  Core costs, food and energy, fell 0.1%, first drop in 26 years.

“Prices have reversed,

Energy costs dropped 8.6%, led by a 14.2% dive in gasoline prices.

But prices for clothing, airline fares and new vehicles also fell as Americans sharply restrict discretionary spending.

Overall consumer costs rose 3.7% from a year ago — a sharp deceleration from 5.6% in July. Core inflation was 2.2%, down from 2.5% in September.

Meanwhile, housing starts dived 4.5% to an annual rate of 791,000 units in October, the slowest pace since 1959.

Give the Fed more room to cut rates next month.

Chronic deflation discussed for the first time in years.

We’re seeing deflation in the short term.

Negative for housing. Building permits —  plunged 12% to a 708,000-unit pace.

Slack construction should erase the glut of unsold homes.