Wholesale inflation, industrial output fall

WASHINGTON -- Wholesale inflation, helped by a record plunge in gasoline prices, dropped by the largest amount in more than three years in September. Industrial production was down sharply, too.

The reports yesterday were viewed as evidence that the slowing economy is lowering inflation pressures -- just what the Federal Reserve hoped for.

Wholesale prices fell by 1.3 percent, nearly double the expected decline, as the cost of gasoline sank by 22.2 percent, the biggest drop on record, the Labor Department reported.

Meanwhile, the Federal Reserve said output at the nation's factories, mines, and utilities fell by 0.6 percent, the worst showing since the widespread shutdowns caused by Hurricane Katrina a year ago.

Manufacturing output dropped 0.3 percent, with widespread declines in auto production and other consumer goods, reflecting the fact that factories are trimming production to work down a backlog of unsold items.

``With the economy still in danger of a considerable slowdown as the housing market cools, manufacturing may be restrained further as firms try to avoid getting caught with excess inventories," said Bart Melek, an economist at BMO Capital Markets.

Brian Bethune, US economist at Global Insight, called the overall performance of wholesale prices in September ``unequivocally good news" and said it should keep the Federal Reserve on hold when policymakers meet next week.