Wholesale Price Drop Calms Inflation Fears : Economy: Analysts say much of the 0.2% decline in October can be traced to stable auto prices.

Wholesale prices fell an unexpected 0.2% in October, the Labor Department said Tuesday, adding to evidence that inflationary pressures have largely abated even as the slow-paced recovery is strengthening.

The department said the producer price index fell 0.2% in the month, following a 0.2% rise in September.

Much of this decline was accounted for by a seasonally adjusted drop in auto prices as car manufacturers kept price increases on their 1994 models generally contained.

“Since there has been some modest growth in the economy, the decline in wholesale prices is particularly gratifying,” said Ron Schreibman of the National Assn. of Wholesaler-Distributors.

The unexpected drop in wholesale prices for the month meant that at this level, the United States has experienced price stability over the past year, analysts said.

“What is more important, however, is that all the fundamentals point toward price stability,” said Gordon Richards, economist at the manufacturers association.

Analysts said lower inflation is being fed by a relatively steady but weak U.S. recovery, combined with recession among many of America’s trading partners.

At the same time, there is the belief that the United States has entered a fundamentally new economic period in which inflationary pressures represent a substantially reduced danger compared to the threat that existed in the past two decades.

“We are in a fundamental and radically different inflationary backdrop than in the past,” said Allen Sinai of Boston Company Economic Advisors Inc.

While the recovery has generally lagged prior upturns, it has been strengthening as the year has progressed. In the third quarter, growth rose 2.8%, and it is generally expected to register about 3.0% in the current quarter.

“We’re seeing a little more rapid growth. Underline little ,” said Allan Leslie of Discount Corp. of New York.

The Labor Department said that with the volatile food and energy sectors subtracted, producer prices fell 0.5% in October after being unchanged in September.

The calm inflation picture has allowed the Federal Reserve Board to stand on the sidelines, satisfied that the present level of interest rates is allowing the economy to inch forward without unleashing inflation.

October wholesale prices were better than Wall Street economists had expected. A Reuters survey forecast an average 0.2% increase in the overall index and a 0.1% rise excluding the food and energy components.

The department said energy prices rose 1.3% last month, fueled in part by a 6.3% increase in gasoline costs.