INSTANT VIEW: CPI plunges record 1 percent in October

NEW YORK (Reuters) - Consumer prices plummeted at the sharpest rate on record in October as a slowing economy caused energy costs to drop for a third straight month, according to a Labor Department report on Wednesday.

Construction starts on new U.S. homes fell to a record low in October, as did new applications for building permits, a report by the Commerce Department showed on Wednesday, signaling that the national housing downturn may extend well into the future.

KEY POINTS:

CPI: * The Consumer Price Index fell 1 percent in October from September. * Wall Street analysts were expecting a 0.8 percent decline and the biggest drop since the department began monthly data in 1947. * Core prices, which exclude food and energy items, declined 0.1 percent in contrast to the 0.1 percent advance that had been forecast. * Energy prices dropped 8.6 percent in October, after declines of 3.1 percent in August and 1.9 percent in September. * Gasoline prices plunged 14.2 percent in October, also a record drop. However, gasoline prices were still 12 percent above the price a year ago. * Food costs were up 0.3 percent in October, half the 0.6 percent rise posted in September. * On a year-over-year basis, the Consumer Price Index rose 3.7 percent, the smallest increase in a year.

HOUSING STARTS: * Housing starts fell 4.5 percent to a seasonally adjusted annual rate of 791,000 units from September's 828,000 units. * New applications for building permits, which give a sense of future home construction, plummeted 12 percent to 708,000 from 805,000 in September. * analysts polled by Reuters were expecting housing starts to tumble to 780,000 units and permits to reach 780,000.

COMMENTS:

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO.:

"The numbers were better than expected as far as broad-based and core but inflationary data isn't moving the markets as much as other things."

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S, NEW YORK:

"Nice numbers, unless you're a retailer. It repeats what we saw in the PPI yesterday, there's not any inflation out there. except even after you take out food and energy prices, the CPI was down 0.1 percent, and we're up only 2.2 percent from a year ago, which is pretty much in line with what the Fed wants it to be.

"This is good news (for the Fed), because it says they don't have to worry about inflation, they can concentrate on fighting recession.

HOUSING STARTS: "Very weak numbers, but pretty much expected. We expect it to bottom over the winter, exactly where I'm not sure. But we don't expect a lot of recovery next year. We're looking next year to average just a little bit better than this, about 870,000 starts."

CARL LANTZ, U.S. INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW YORK:

CPI:

"I think it's a reflection of very weak demand, consistent with what we all know. To be honest there is not a lot of new information here. The surprise would have been if somehow prices had been firmer. The fourth quarter is probably going to be the most intense period of economic weakness.

"I think we were bound to get a negative core print if not this month then next month. We're hearing from all the retailers that they are discounting aggressively and that is showing up in things like apparel.

"It was pretty well known that the headline would be very soft given what has happened to energy prices.

"I think that although the official consensus for core was 0.1 percent I think the market kind of suspected it would be softer and that's part of the reason you've seen a lot of strength in the back end of Treasuries the last couple of days. So, all in all the impact on the market is actually quite of muted.

"Looking forward there is more scope for weakness."

MICHAEL SHELDON, CHIEF MARKET STRATEGIST, RDM FINANCIAL, WESTPORT, CONNECTICUT:

"In the headline CPI, the price drop was the largest 1 month drop since record-keeping began in 1947. It appears we are in a period of disinflation right now, where the actual level of inflation is trending lower.

"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.

"In the housing starts number, I look at the building permits which are more of a leading indicator, and they had a fairly significant drop. This shows the housing market is continuing to look for a bottom."

SACHA TIHANYI, ASSOCIATE CURRENCY STRATEGIST, SCOTIA CAPITAL, TORONTO:

"Inflation data was a record drop and may be giving investors a little bit of confidence the Fed won't feel constrained in dropping rates even further."

MIKE POND, TREASURY, INFLATION-LINKED STRATEGIST, BARCLAYS CAPITAL, NEW YORK:

(The CPI reading) "was weaker across the board, but to some extent that was anticipated by the market. PPI surprised to the downside yesterday so the Treasury market was already set up for a weaker-than-consensus number, so we are not seeing a big reaction here in Treasuries."

MARKET REACTION: STOCKS: U.S. equity index futures remain in the red after October

CPI. BONDS: Treasury debt prices hold gains. DOLLAR: U.S. dollar pares losses versus yen. RATE FUTURES: U.S. rate futures fall after dip in core CPI.