The U.S. Producer Price Index plunged like never before in October.

The PPI fell 1.6% on the headline, and 0.5% on the core rate. A 4.7% fall in car prices and a 1.3% drop in light truck/SUV prices helped drive the decline.

The energy sector saw a 7.7% price drop, as gas prices plunged 21% and natural gas dropped 6%.

“The decline in inflation passed from good news to potentially bad news today as prices plunged in the October U.S. PPI report. A little downward pressure is a good thing but this is too much! Profit margins are under attack. There’s no question, however, that these figures are a bond buyer’s dream,” says BMO Nesbitt Burns.

Today’s retreat in producer prices hints strongly at a friendly CPI report next week, notes CIBC World Markets. “And while this report is bullish for inflation, the broad price weakness signals poor profit margins for U.S. manufacturers. Little reason to expect the underlying inflation backdrop to heat up soon, particularly in the goods sector, where an ongoing erosion in domestic and external demand looks to keep a tight lid on core prices.”

“Is this big drop believable?” asks BMO. “Some temporary factors were clearly at work last month, including the zero-rate financing in the car sector and the plunge in oil prices that has since partially reversed. But we note that nearly all the twelve-month comparisons on this page have turned negative. Something fundamental is happening.”

BMO says, “Capacity utilization is crashing and import prices fell a record amount last month. Core crude and intermediate materials prices are also falling. There is a recession and huge global excess capacity. The target for everyone is the U.S. market where the strong dollar makes U.S. companies sitting ducks for import competition. The PPI will fall further in coming months.”

CIBC concludes that, while meaningful fiscal stimulus may make Greenspan’s job easier, “we still see a sub-2% funds rate in December, with perhaps a final monetary injection coming early in the new year.”