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Wholesale prices fall by record amount, sparking deflation concerns

Wholesale prices fall by record amount, sparking deflation concerns
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U.S. wholesale prices fell by a record amount last month, according to The Associated Press, sparking concerns about a deflation threat in the country as the coronavirus pandemic has caused the economy to falter. 

The Labor Department’s producer price index (PPI), which measures inflation at the wholesale level, fell by 1.3 percent in April — the largest drop since 2009, when the data was revamped. The drop was led by energy prices, which plummeted by 19 percent during the month.

The PPI came out a day after the U.S. said consumer prices fell 0.8 percent in April, the biggest month-to-month decrease since the 2008 global financial crisis.

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The drops in consumer prices and wholesale prices hint that a period of deflation could be approaching as the pandemic slashed demand in the economy. The AP noted the expected deflation is not something the U.S. has experienced since the Great Depression.

Gregory Daco, the chief economist at Oxford Economics, told the AP that the news report is “stark evidence” that the pandemic will have a huge effect on the economy.

“The serve demand shock from the COVID-19, the collapse of oil prices and the stronger dollar will continue to exert strong deflationary pressure on prices,” Daco said.

April was the third consecutive month of reduced energy prices, which showed the prices were decreasing before the pandemic and coronavirus expedited the drop.

Federal Reserve Chairman Jerome Powell said in a Wednesday webcast sponsored by the Peterson Institute that the economy is at risk for a prolonged recession and called on Congress and the president to do more to support the economy.