Recessions hits US harder than expected

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The Independent Online

The cost of living in the US fell by the most in on record and builders started work on fewer homes since at least the 1960s last month, as the recession bites more deeply than expected into the world’s largest economy.

The plunging price of oil and other commodities on the world’s markets has begun feeding through to petrol and food prices, new data showed yesterday, and the consumer price index fell 1.0 per cent in October.

That was the sharpest decline since records began in 1947, and underscored how the focus of monetary policy makers has switched from combatting inflation to stoking demand in the fast-contracting economy. The figures also raised debate about the possibility that deflation could take hold.

Michael Sheldon, chief market strategist at RDM Financial, said: "It appears we are in a period of disinflation right now. Looking ahead, the question is will the economy rebound enough with the benefit of a big stimulus plan in 2009 to prevent deflation and get consumers spending again.”

Excluding volatile food and energy prices, core inflation also fell – unexpectedly – for the first time since the recession of the early Eighties. Second-hand cars and clothing were among the items falling in price, as dealers and retailers struggled to tempt buyers.

Builders began construction on fewer new homes in the US in October, for the fourth month in a row. Housing starts were 38 per cent below the rate a year ago, as demand and prices continue to be depressed.