Key gauge of inflation falls three straight months for the first time in history

Key gauge of inflation falls three straight months for the first time in history

A closely watched gauge of U.S. price changes fell in three consecutive months for the first time in history, the Bureau of Labor Statistics (BLS) reported Wednesday, raising concerns about a potential deflationary spiral that could hinder the recovery from the pandemic recession.

The Consumer Price Index minus food and energy, also known as core CPI, dropped 0.1 percent in May after declines of 0.4 percent and 0.1 percent in April and March, respectively, according to BLS data released Wednesday. The BLS has calculated core CPI since 1957.

Core CPI is a widely monitored measure of price changes that excludes fluctuations in food and energy costs, which are typically more volatile. The historic three-month decline in core CPI has left some economists worried that the coronavirus-driven economic downturn is sapping the steady consumer demand needed to help the economy rebound.

“The May consumer price data continue to underscore that the fallout from the coronavirus is having a large disinflationary effect on prices due to the large demand shock, plunge in oil prices, and still strong dollar,” wrote Oxford Economics economists Gregory Daco and Kathy Bostjancic in a Wednesday research note.

Economists largely agree that a moderate level of inflation reflects the demand from consumers and businesses needed to keep the economy expanding. The Federal Reserve considers 2 percent to be the ideal level of annual inflation to promote steady growth and allow the economy to respond to shocks.

Steady deflation, however, tends to reflect declining demand for goods and services, reflecting deeper issues within the economy that could extend periods of hardship. 

The surprising gain of 2.5 million jobs in May has spurred hopes of quicker rebound from the coronavirus-driven pandemic, which had cost the U.S. more than 21 million jobs before last month’s reversal. Even so, economists warn that it will take a year or more to fully recover from the damage wrought by the crisis.