WASHINGTON, United States (AP):

Wholesale inflation in the United States plunged by the largest amount in more than three years in September as a record drop in gasolene prices offset higher costs for cars and other items.

And in a sign of a slowing economy, industrial output dropped by the largest amount in a year.

The US Labor Department reported that wholesale prices overall fell 1.3 per cent last month, nearly double the decline that analysts had been expecting. Gasolene prices plummeted 22.2 per cent, the biggest one-month decrease on record.

In a second report, the Federal Reserve said that industrial output dropped by 0.6 per cent in September, reflecting declining production at the nation's factories and a big drop in utility output as cooler September weather cut electricity production.

It was the first drop in industrial production since January and the biggest fall since a 1.3 per cent plunge in September 2005 which resulted from widespread shutdowns following Hurricane Katrina.

While the overall inflation performance was much better than expected, core inflation, which excludes energy and food, jumped by 0.6 per cent in September, the biggest increase in this area in 20 months. Much of that gain was due to a jump in new car prices, which had been falling previously because of the widespread use of attractive incentives aimed at moving a backlog of unsold cars.

Decline expected

The 0.6 per cent fall in industrial production in September was a much bigger decline than the 0.1 per cent dip that Wall Street had been expecting. It followed no change at all in August as the nation's factory sector signalled it was slowing production in response to the overall economic slowdown.

Financial markets are hoping that a slowing economy and recent sharp declines in global oil prices will help to lower inflation pressures in coming months and keep the Federal Reserve from pushing interest rates higher.

After raising rates for a record 17 consecutive times, the Fed left rates unchanged at its August and September meetings. The Fed meets again next week and economists widely expect no change at that meeting either.

For September, the 22.2 per cent drop in gasoline prices was the biggest decline on record, surpassing the old mark of a 22.1 per cent drop in March 1986. Since peaking above US$3 per gallon in early August, gasolene prices have fallen by more than 70 cents.

Overall energy costs were down 8.4 per cent, the first drop at the wholesale level since last February, and the biggest decline since July 1986.