Economic Report: Consumer prices drop again as pandemic cuts rate of inflation to near zero

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The numbers: The cost of some U.S. consumer goods such as groceries have spiked for households, but inflation more broadly fell again in May owing to a slump in demand triggered by the coronavirus pandemic.

The consumer price index slipped 0.1% last month after a much larger drop in April, the government said Wednesday. It was the third straight decline.

Overall inflation has softened considerably in the past several months almost to the point of being erased. Consumer prices have risen just 0.1% in the last 12 months, down from a 2.4% yearly rate as recently as February.

Another measure of inflation that strips out volatile gas and food prices, known as core CPI, also declined for the third month in a row, marking the first time that’s ever happened since the government began compiling the number in 1957.

Read:U.S. entered recession in February after end of longest expansion in history

What happened: The cost of gasoline dropped 3.5% in May, doing much of the work in reducing overall consumer prices. Prices also fell for clothing, car insurance, airfare, hotel rooms and used vehicles.

The cost of groceries rose sharply again, however, reflecting a scarcity of some goods in high demand as well as shortages caused by viral outbreaks at meat-packing plants. Beef prices in particular jumped, up a record 10.8% in May.

The so-called food-at-home index has soared 4.8% in the past 12 months — the highest rate in more than eight years.

The cost of shelter — rents and home prices — also rose 0.2% in May – but rents are rising at a slower pace than they were before the pandemic.

Prices also increased for alcohol, medical care and new cars and trucks.

Still, most consumers are paying less to maintain their standard of living. While they are paying more for food and rent, the lockdowns triggered by the pandemic have caused them to stop spending on a variety of other goods and services altogether.

Read:U.S. regains 2.5 million jobs in May, unemployment falls to 13.3%

Also:Revisiting that funky drop in unemployment to 13.3%: Nobody really believes it

Big picture: Consumers have had to cope with scattered prices increases for some goods such as sanitizer, toilet paper and meat, but the cost of most goods and services have fallen. Companies have cut prices to try to drum up sales, especially those in industries such as leisure, hospitality and travel that have suffered a major loss of customers due to social distancing.

Inflation is unlikely to pose a problem to the U.S. economy for quite some time even though prices are likely to rise again as the economy recovers. The cost of gas, for instance, has already rebounded and that’s likely to bring the recent streak of consumer-price declines to a halt in June.

Recognizing the reality of low inflation, the Federal Reserve has already cut its policy interest rate to near zero and has indicated it could be several years before rates rise.

Read: Small businesses turn more optimistic, NFIB says, and expect ‘short-lived’ recession

What they are saying? ”Price pressures in the U.S. faded further in May as another drop in energy prices along with weak demand weighed on inflation,” said economist Katherine Judge of CIBC Capital Markets.

Market reaction: The Dow Jones Industrial Average DJIA, -0.60% fell slightly and S&P 500 SPX, -0.17% edged higher in early Wednesday trades.

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