US inflation falls still further

US consumer prices dropped by a record amount in November as petrol prices and other energy costs continued to fall.

The Consumer Price Index (CPI) dropped by 1.7% in November, according to the US Labor Department, following a decline of 1% in October.

October and November's falls were the two biggest since monthly data first started being recorded in 1947.

And the annual rate of inflation was just 1.1% in November, down from 3.7% the previous month.

Energy prices fell 17% last month, double October's 8.6% dip.

Oil price falls

These latest big declines reflect the recession in the US and will raise the pressure on the Federal Reserve - the central bank - to act decisively to guard against a debilitating bout of deflation.

Paul Ashworth, at Capital Economics, said: "The headline inflation rate is now guaranteed to fall deep into negative territory next year."

"If this was just a decline in the relative price of commodities then it would be a little easier to live with," he said.

"However, the rapid moderation in core inflation suggests that there is a real risk of a sustained decline in the general price level. In short, the US economy could slip into a deflation within the next 12 months."

Much of the headline inflation fall was taken up by the continuing drop in crude oil prices, reflected in the further fall in the energy index.

Energy prices are now 32.4% below their peak in July earlier this year.

The gasoline index fell 29.5% in November and petrol prices are now 47% below their July peak.

Food prices increased 0.2% in November, following a 0.3% rise in October.

Excluding food and energy, core prices were virtually unchanged in November, after declining 0.1% in October, and are up 2.0% since November 2007.

Later on Tuesday the Federal Reserve is widely expected to cut its key federal funds rate, already at a low of 1%, by another half percentage point in an effort to keep the recession from worsening.