Consumer Prices fall by record amount(1.7%) againin November

NEW YORK (CNNMoney.com) -- Consumer prices dragged down by plunging energy costs fell by a staggering amount in November, the government reported Tuesday.

The decline marked the second straight month that prices fell by a record amount.

The Consumer Price Index, a key inflation reading, fell 1.7% last month, according to the Labor Department. That was much weaker than October's 1% drop and exceeded the 1.3% decline forecast by a consensus of economists surveyed by Briefing.com.

Prices fell by the greatest amount since the Department of Labor began publishing seasonally adjusted changes in February 1947.

Consumer prices have performed a virtual about-face in recent months. For most of the year, high energy prices have caused consumer prices to soar, reaching a 17-year high in July. But energy prices have fallen about 70% since then, as the credit crunch deepened.

Demand for consumer products has fallen precipitously in recent months, after the credit crunch exploded into a crisis in mid-September. Loans have been expensive and hard to come by for those who want to make purchases for big-ticket items, and consumer confidence remained near an all-time low in November, according to a recent Conference Board study.

Tuesday's report is just further indication that consumers have dramatically shifted their spending habits in the past few months, opting to save money or pay down debt rather than spend it. A separate report released by the Federal Reserve last week showed American household debt fell for the first time ever in the third quarter, as net worth dropped by the largest amount on record based on data going back to 1951.

Core inflation falls ahead of Fed decision

The closely watched core CPI, which strips out volatile food and energy prices, was unchanged last month. Economists had expected a 0.1% rise after a 0.1% drop in November. Core CPI posted a 12-month change of 2%, down from a 2.2% rise on that basis from the month before.

Core inflation is now at its lowest point since September 2005 and at a level that central bankers are typically comfortable with. It's believed that the Federal Reserve wants the 12-month change in core inflation to remain between 1% and 2%.

Food prices actually continued to rise very slightly - increasing 0.2% in November - but energy prices fell by a record 17% in the month. Gasoline prices fell by 29.5% in the month, according to the report.

Economists say falling prices have given the Federal Reserve more wiggle room for lowering interest rates, since those cuts tend to be inflationary. The Fed is expected to cut its benchmark rate to an all-time low of 0.5% Tuesday afternoon in response to deterioration in global financial system.

On Friday, a separate Labor Department report showed wholesale prices also fell in November as energy costs continued to decline.