Prices drop for the first time since June

After months of rising prices, inflation fell as consumers paid less for cars and gasoline in October. 

A Labor Department report Wednesday showed that consumer prices dropped 0.1 percent last month, the first decrease since June, as households got some budget relief. 

Gas prices led the decline while food prices rose 0.1 percent, the slowest pace this year. 

Excluding volatile food and energy costs, so-called “core” prices rose 0.1 percent. 

After months of uncertainty and talk about another recession, the economic recovery appears to be picking up some steam, albeit slowly. 

A slower pace of inflation, which had climbed steadily and might have hit its peak for the year, could give the Federal Reserve more room to use monetary policy to lower high unemployment and stimulate the economy. 

A separate report also released Wednesday offered more positive economic news as industrial output rebounded 0.7 percent last month, its best showing since July, after being revised downward 0.1 percent in September, as the manufacturing sector ramps up production, the Federal Reserve said Wednesday.

Even better news was a 0.5 percent increase in factory output, the largest component of industrial production, following a 0.3 percent increase in September. It was the fourth straight monthly gain as production at mines climbed 2.3 percent. 

Total industrial production for October was 3.9 percent higher than at the same time last year. 

Capacity utilization for total industry stepped up to 77.8 percent, 2.1 percentage points higher than its level from a year earlier but 2.6 percentage points less than its long-run (1972-2010) average.

The auto industry has rebounded to drive most of the growth in factory output, especially as supply chains have been restored following the March earthquake and tsunami in Japan. 

While costs for rental housing and medical care accelerated in October and the apparel index turned up, the indexes for new vehicles, used cars and trucks, airline fares, hotels and recreation all declined, the Labor Department report showed.

Rising oil prices sent the average cost of gas to nearly $4 per gallon in May when oil prices reached a peak of $113.93 per barrel. 

The energy index fell 2 percent in October following a 2 percent increase in September, while the gasoline index, up 2.9 percent in September, fell 3.1 percent in October. 

Despite the October decline, the gasoline index has risen 23.5 percent over the past 12 months.

Still, oil prices have been increasing recently with signs of an improving economy, and on Wednesday they hit $100 per barrel for the first time in four months.

Higher prices could pinch the pockets of consumers during a holiday season when retailers are hoping for a solid increase in spending. 

Consumer prices increased 3.5 percent in the 12 months ending in October. Core prices rose 2.1 percent in that stretch.

A pick-up in consumer spending lifted third-quarter growth to 2.5 percent. A Commerce Department report Tuesday showed that retail sales rose 0.5 percent in October with increased spending on autos, electronics, sporting goods, books, music and building supplies.