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Wholesale prices, industrial production both down sharply

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 Tuesday 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.

While the overall inflation performance was much better than expected, core inflation, which excludes energy and food, jumped by 0.6 percent in September, the biggest increase in this area in 20 months.