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Updated: June 10, 2020

Prices keep falling, even as the economy starts to reopen

By Anneken Tappe, CNN Business

Consumer prices continued to fall in May even as the economy began to reopen.

Although lockdown measures eased across the country, consumers kept their wallets closed, keeping prices low.

The consumer price index declined 0.1% in May on a seasonally adjusted basis, the Bureau of Labor Statistics reported Wednesday. This is the third straight month of falling prices. In April, prices declined 0.8% on a seasonally adjusted basis, the largest drop since December 2008.

Stripping out food and energy prices, which tend to be more volatile, consumer prices fell 0.1% in May. It was the first time on record that this so-called core inflation declined for three months in a row.

America is in a recession, and it will need consumer spending that can stimulate price increases to get its way out of the dire situation.

Economists had predicted the coronavirus pandemic would have a disinflationary effect on the economy -- meaning that inflation would drop temporarily, while long-term prices keep increasing. Over the past twelve months, consumer prices have increased by 0.1%.

It looks like consumer prices just missed tipping over into deflation in May, and with the economy reopening further in June, prices could get a boost, said Chris Rupkey, chief financial economist at MUFG.

At the same time, "the downward pressure on inflation will only mount given elevated joblessness," said Sal Guatieri, senior economist at BMO, in a note to clients.

The joblessness crisis isn't inspiring people to spend their money, even as the government expanded unemployment benefits and sent one-off stimulus checks to many Americans.

The US economy added 2.5 million jobs in May, but only after 20.7 million jobs vanished in April. Nearly 43 million people have applied for first-time unemployment benefits since mid-March.

Food prices explode

Food prices were one of the most notable parts of the May report. Overall they increased 0.7%, albeit at a slower pace than in April.

By far the biggest price jump was amid meats, poultry, fish and eggs prices, which climbed 10% over the past year. The index for beef prices jumped by far the most, climbing 10.8% in May and 18.2% over the past twelve months.

Restaurants remain closed in many places, and people have gotten used to cooking a home more frequently. Food supply chains have also felt the strain of the pandemic.

Shelter prices also rose in May, but those increases were more than offset by drops in car insurance, energy and clothing. Prices for plane tickets and used cars also fell.

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