Consumer prices posted their biggest drop in 19 months in April thanks largely to new bargains at the gas pump in the aftermath of war in Iraq.

The consumer-price index, used by the government to track inflation, fell 0.3% in April after a 0.3% increase in March, the Department of Labor reported on Friday. The news fueled growing concerns about deflation on Wall Street, and stock prices responded with a morning retreat.

Economists were forecasting a drop of 0.2% for the index, and a 0.1% slide in the core index, which excludes volatile food and energy items. The core index held its ground for the second consecutive month.

Over the last year, core inflation fell from a rate of 1.7% to 1.5%, its lowest rate since March 1966. Consumer prices grew 2.2% while energy and gas prices posted their biggest declines since November 2001, falling 4.6% and 8.3% respectively.

On the bright side, consumer confidence rose in early May with expectations of an economic recovery on the horizon, according to a survey conducted by the University of Michigan. The consumer sentiment survey rose to 93.2 from April 86.0, the school reported on Friday.

Meanwhile, the Commerce Department reported that housing starts were off 6.8% in April compared to the forecast drop of 3.1%, while permits, an indicator of builder confidence, rose 1.2%. While many economists maintain that the housing market remains strong, worries that it has reached its peak also persist.