November 16, 2011 / 3:16 PM / 8 years ago

WRAPUP 2-US Oct consumer prices fall, giving Fed more room

* U.S. Oct consumer prices down 0.1 pct on gasoline, cars

* Core prices up 0.1 pct

* Industrial output rises 0.7 pct, largest gain since July

By Jason Lange

WASHINGTON, Nov 16 (Reuters) - U.S. consumer prices fell in October for the first time in four months, taking pressure off strapped households and giving the Federal Reserve more room to ease monetary policy if the economy falters.

But for now, growth is gaining traction and a separate report on Wednesday showed industrial output rebounded strongly last month as factories and mines ramped up production.

“The consistent theme in the recent flow of economic data has been one of accelerating momentum in economic activity,” said Millan Mulraine, a senior macro strategist at TD Securities in New York.

“Nevertheless, the concern for the recovery continues to be about what happens in Europe, as any escalation in the unfolding debt crisis could present a significant obstacle for the economic recovery.”

The Labor Department said consumer prices dropped 0.1 percent last month, which was roughly in line with expectations, as Americans paid less for new cars and gasoline.

The data reinforces the view that inflation is poised to trend lower following a spike in oil prices earlier in the year. That is seen giving the Fed more room to act if the economy slows.

“The Fed remains intently focused on employment and growth — and not on inflation,” said Jacob Oubina, an economist at RBC Capital Markets in New York.

A separate report from the Fed showed industrial production rebounded 0.7 percent last month after slipping 0.1 percent in September. October’s increase was the largest since July.

Economists had expected industrial production to rise 0.4 percent last month.

Manufacturing expanded 0.5 percent after rising 0.3 percent in September. The gain reflected a 3.1 percent jump in the production of motor vehicles and parts.

Mining output surged 2.3 percent, more than reversing September’s 0.5 percent drop. Utilities fell 0.1 percent, declining for a third straight month.

The report showed little sign of inflation, even though capacity utilization last month rose to its highest level since July 2008.

The drop in prices in October also will be a relief to workers whose wages have failed to keep up with inflation in recent months.

A separate report by the Labor Department showed inflation-adjusted weekly earnings rose 0.3 percent in October.

Major U.S. stock indexes were lower on worries about Europe debt problems. The dollar extended gains against the euro after the inflation data was published, while U.S. Treasuries were steady at higher levels.

Economists had expected the Consumer Price Index would be flat last month after rising 0.3 percent in September.

The economy has been gaining steam since the summer, but Europe’s worsening sovereign debt crisis threatens to throw the U.S. economy back into recession.

“The data is relatively upbeat in the U.S., which contrasts with the situation in Europe,” said Omer Esiner, a strategist at Commonwealth Foreign Exchange in Washington.

Also looming over the economy, the U.S. Congress could let tax cuts and some unemployment benefits expire at the end of year, which would drag on growth.

Investors and economists generally expect 12-month inflation will fall sharply over the next year, and the Federal Reserve has said it also expects inflation will cool.

The Fed cut overnight interest rates to near zero almost three years ago and has bought $2.3 trillion in bonds to further spur growth. It recently said it was likely to hold rates near rock-bottom levels through at least mid-2013.

Food prices rose 0.1 percent in October, while gasoline fell 3.1 percent.

Outside food and energy, prices climbed 0.1 percent in October, the same pace registered in September. The so-called core index rose because higher prices on non-energy services and for apparel outweighed a 0.3 percent decline in new vehicle prices. Shelter costs rose 0.2 percent, while apparel increased 0.4 percent.

In the 12 months through October, consumer prices rose 3.5 percent after rising 3.9 percent in the full year through September.

Core prices rose 2.1 percent in the 12 months through October, up from 2.0 percent in September.

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