Economists expect more price declines ahead with large parts of the economy shut down and millions out of work. They believe the country has already entered a steep recession and the falling prices raise the prospect of disinflation.
When producers lack pricing power, it can create a circular pattern in which consumers put purchases on hold, driving prices down further. Consumer activity accounts for 70 percent of all U.S. economic activity and a sustained chill in spending can damage the overall economy.
Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said the concerns about disinflation was one of the reasons the Federal Reserve has moved so forcefully to combat the current crisis.
Chris Rupkey, chief financial economist at MUFG Union Bank in New York, said, “There’s deflation in the air and more downward pressure on prices is imminent with economic demand plummeting this quarter.”
Economists are already predicting that the economy could fall by as much as 30 percent at an annual rate this quarter. The hope is that the downturn will be short as economic activity rebounds sharply once the virus is contained.-AP
