Price index for finished goods plunges

WASHINGTON - Prices paid to US producers plunged in October by the most on record as the faltering global economy caused demand for commodities to dry up.

The 2.8 percent drop was larger than forecast and follows a 0.4 percent decline in September.

The figures, from the US Labor Department, came after the United Kingdom reported the biggest decrease in its inflation rate in at least 11 years, signs that deflation may be added to the list of economic challenges facing President-elect Barack Obama in January.

A collapse in demand is forcing companies including Dow Chemical, the largest US chemical maker, to charge lower prices and has brought automaker General Motors Corp. to the brink of bankruptcy. Central banks are likely to keep cutting interest rates, with some benchmarks approaching zero percent, as a global recession increases the threat of deflation.

Fuel prices are falling fast and will continue to drop, said Michael Gregory, a senior economist at BMO Capital Markets in Toronto, who had forecast a 2.5 percent decline in the PPI.

Private reports yesterday showed more deterioration in the US housing market, where the financial crisis and the economic slump began. Home prices fell in 80 percent of US cities in the third quarter, according to figures from the Chicago-based National Association of Realtors.

Confidence among US home builders in November dropped to the lowest level since record keeping began in 1985, according to the National Association of Home Builders/Wells Fargo. The index of builder confidence decreased to 9, lower than forecast, from 14 in October. A reading of less than 50 means most respondents view conditions as poor.

Wholesale prices were projected to decline 1.9 percent, according to the median of 76 forecasts in a Bloomberg News survey. Estimates ranged from declines of 0.3 percent to 2.8 percent.

So-called core producer prices, which exclude fuel and food, rose 0.4 percent, indicating the declines in raw-material costs have yet to feed through to other products.