Consumer prices in the United States fell more than expected in October, adding to what economists increasingly see as the risk of deflation - an overall fall in the price level, a phenomenon associated with the depression of the 1930s. VOA's Barry Wood has more.

Reduced new house prices in Springfield, Illinois, 18 Nov 2008

U.S. consumer prices fell one percent in October, twice as much as forecasters expected. It was the biggest monthly drop in 61 years and was mostly due to big declines in fuel prices.

Oil has undergone an extraordinary reversal after touching a record high of $147 a barrel in July. In the face of collapsing consumer demand, oil has fallen by 63 percent to its close of below $54 on Wednesday.

While six months ago governments and central banks worried about inflation, they have now increasingly turned their attention to deflation.

"Deflation is a symptom of insufficient demand relative to productive capacity," said Mickey Levy of Bank of America, who spoke at the Cato monetary conference in Washington. "In both Japan in the 1990s and the U.S. in the 1930s you had declining nominal spending in the economy."

Economist John Makin of the American Enterprise Institute told the Cato conference that he too is worried deflation. He was responding to a question about the inflationary impact of greatly increased government spending, particularly the $700 billion put aside to rescue banks.

"My concern is with the onset of deflation," he said. "Certainly, a central bank can debase the currency and has done so, but if we need to offset deflation the Federal Reserve has a good record in terms of its record of assuring price stability."

Stock prices have similarly been deflating with an estimated $25 trillion having been erased from the value of shares worldwide in the past six months. Amid concern about its ability to survive, shares of General Motors sank Wednesday to a 66-year low of under $2.70.

There is heightened worry about a downward spiral in economic activity stemming from the year-long credit squeeze and the steady erosion of stock prices. The Federal Reserve now suggests that there is unlikely to be much growth in the U.S. economy for the next eight months. And the International Monetary Fund has steadily scaled back its projections of world growth for 2009. In addition to recession in the United States, Japan has apparently slipped into another downturn and both Britain and Germany are said to be in recession.