By CHRISTOPHER S. RUGABER
WASHINGTON (AP) -- Inflation may have peaked after surging in the spring.
Americans paid less for gas, cars and computers last month as overall prices fell for the first time since June.
The trend, if it can be sustained, will provide relief for consumers. It will also give the Federal Reserve more leeway to take further steps to stimulate the economy without igniting high inflation.
The Consumer Price Index dropped 0.1 percent in October, the Labor Department said Wednesday. A steep drop in gas prices led the decline. Food prices rose, but at the slowest pace this year.
Excluding volatile food and energy costs, so-called "core" prices inched up 0.1 percent. The cost of renting an apartment rose, as did prices for health care products and services.
But new-car prices dropped by the most in nearly two years. Airline fares and hotel costs declined.
"There is little evidence of broad-based upward pressure on prices," Ryan Wang, an economist at HSBC Securities, said in a note to clients.
Consumer prices rose 3.5 percent in the 12 months ending in October. That's down from a 3.9 percent pace in the 12 months ending in September. Core prices have risen 2.1 percent in that stretch.
Paul Ashworth, an economist at Capital Economics, said he expects the increase in the overall price index to fall to 3 percent by the end of this year and even lower next year.
A spike in prices of oil and many agricultural commodities this spring raised the cost of food and gas. That caused inflation to jump.
Oil prices rose because of turmoil in the Middle East, peaking at $113.93 on April 29. But prices fell in late summer because of worries that growth in the United States and Europe would slow. Oil fell as low as $76 barrel in early October.
That trend has pushed gas prices down. The average has fallen 3.1 percent in October. It's since declined further, averaging $3.40 a gallon Wednesday, according to AAA. That's down 6 cents from a month ago.
Oil prices have since rebounded and topped $100 per barrel Wednesday for the first time since July.
Still, most economists expect inflation to remain in check. That's because even at $100 a barrel, oil is cheaper than it was in the spring.
The year-over-year inflation rate is based on last fall's lower oil and gas prices. By early 2012, the year-over-year rate will incorporate last spring's higher oil prices and will likely moderate. Inflation reflects changes in prices.
In October, farm commodity prices rose because of growing demand overseas and some bad harvests. Corn prices reached a record $7.99 per bushel in June. That pushes up a range of prices on grocery store shelves because corn is used in everything from cereals to sodas. It is also used as animal feed.
But the cost of corn and other grains has also declined since summer because healthy harvests have boosted supplies. That's now limiting price increases on grocery shelves.
October's increase in food prices was the lowest in 10 months.
High unemployment, stagnant pay and slow economic growth are likely to keep inflation in check. Without higher pay, consumers can't afford big increases in prices.
"In the current soft economic environment, inflation is not an issue for policymakers," said Jennifer Lee, an economist at BMO Capital Markets.
Slower inflation could boost consumer spending, which accounts for 70 percent of the economy. Retail sales rose 0.5 percent in October. Americans spent more on trucks, electronics and building supplies. That suggests the economy is continuing to grow modestly in the October-December quarter.
Still, consumers might not be able to sustain their spending growth if unemployment remains high and pay raises meager. And Europe may be on the brink of a recession, which could further slow U.S. growth next year.
Federal Reserve policymakers are projecting lower inflation next year. That would give the central bank more latitude to hold down interest rates, and potentially take other steps to stimulate the economy. The Fed has kept the benchmark short-term rate it controls at nearly zero for almost three years. If there were signs that inflation was increasing, the Fed would likely raise rates.
The central bank said two weeks ago that it expects inflation to fall from about 2.8 percent this year to roughly 1.7 percent next year. That's in the Fed's preferred range of about 1.7 percent to 2 percent.
A small amount of inflation can be healthy for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.
Copyright 2011 The Associated Press.