Official U.S. consumer prices dropped by a record 1% in October as sellers hacked away at the prices of fuel, cars and clothing to lure in depressed customers. But the numbers don’t add up quite the way Washington and Wall Street would like, according to Adam Lass at Taipan Publishing.

First, let’s take a closer look at those producer figures. Yes, gas costs to retailers went down a startling 25%. But that’s no real shock, as I think that we are all aware oil is down in the mid-$50s per barrel.

Unfortunately for those folks who eat, food costs were only down 0.2%, after nigh doubling over the past few months. And that’s the good news!

Strip away these two drops, and you are left with a truly dismaying conclusion: Core prices actually went up 0.4%. That’s right: despite the headlines, costs to industry are still rising.

It’s an Expensive World After All

Dig into consumer prices and you get a mixed picture here as well.

As mentioned earlier, the top line is down roughly 1%. However, when you compare October 2008 to October 2007, you see that the past year’s inflation still leaves us up 3.3%.

But even that 1% drop is suspect. Strip out the drop in fuel costs, and we actually see a 0.1% rise.

And in fact, not even that fuel cost-cut is an unalloyed joy. While retailers did drop gas at the pump roughly 33%, they only received a 25% cost cut. The rest is coming out of station owners’ bottom lines.

Keep in mind that big refiners like Exxon Mobil (NYSE:XOM) have for the most part sold off their local operations to “private entrepreneurs,” i.e. your neighbors and fellow PTA members, and suddenly this is less a cause of celebration and more a shot across the bow for your town’s and state’s tax base.

The Big Lie

But all this is small beer compared to the really big fib.

Over the past few days, I have seen a veritable parade of talking heads and “in pocket” scribes ranting as to how this one-month drop constitutes the threat of a “horrible deflationary juggernaut that must be stopped in its tracks before it can gain any further momentum.”

Their cure for this “looming threat?” Why printing more money of course!

Because there is, after all, such a “shortage” of dollars out there (okay, it was really hard to type that without shuddering).

Source: Deflation? I think not!