U.S. consumer prices flat in September

This is from MSNBC News:

WASHINGTON - Consumer prices were flat in September as retreating costs for gasoline, clothes and new cars helped to offset rising prices for food, medical care and other things.

The new reading on the Consumer Price Index, the government’s most closely watched inflation barometer, came after prices actually dipped by 0.1 percent in August, the Labor Department reported Thursday.

Those two months, however, had offered Americans a rare reprieve. Consumer prices have marched upward most of the year, spiking by an eye popping 1.1 percent in June.

The toll of galloping prices for much of this year is eating into paychecks, further straining consumers who are pulling back sharply. Recent readings on retail sales were grim. The prospects that consumers will retrench further would spell more trouble for the already ailing economy.

Other economic reports showed that filings for unemployment benefits remained elevated and big industry production plunged by the most since late 1974, largely reflecting fallout from hurricanes Gustav and Ike.

In the inflation report, when energy and food products are stripped out, “core” prices inched up by just 0.1 percent in September, an improvement from a 0.2 percent advance in August.

The latest showing on inflation was better than economists expected. They were forecasting a 0.1 percent increase in overall prices and a 0.2 percent rise minus energy and food.

I'm wondering, with the retail sales dropping 1.2 percent in September, and now consumer prices remaining flat in September, are we starting to see a serious pullback in consumer spending? And because American consumers are pulling back on their spending, producers and retailers are forced to keep their prices flat, rather than forcing consumers to absorb even more price increases. I suspect that if food, medical care, and energy costs continue to increase for producers, then producers are going to cut back on labor costs--or lay off workers--in order to keep their product prices as low as they can, even as consumers are cutting back on their spending. We're spiraling into a recession.