(CN) – American wholesale prices declined the most in five years in February, pulled down by plummeting costs of gasoline and services as the effects of the coronavirus outbreak take a toll on the economy.
The government’s producer price index, which measures costs before goods reach the consumer marketplace, fell 0.6% last month and have risen just 1.3% from a year ago. The monthly decline is the largest drop since January 2015.
The decline can be traced to a 0.9% decrease in prices of goods overall – including a sharp 6.5% drop in gasoline costs – and a 0.3% fall in the cost of services.
The cheaper gas prices are likely linked to less travel as the coronavirus, known as COVID-19, continues to spread across the globe. Two of the nation’s largest oil companies have announced plans to scale back their operations and limit spending after a collapse in U.S. oil prices this week.
Excluding the volatile food, energy and trade services categories, so-called core wholesale prices fell 0.1% in February and are up a modest 1.4% from this time last year, according to a Labor Department report released Thursday.
The 12-month cost increases are well below the Federal Reserve’s 2% annual inflation target. The central bank slashed its key interest last week in a move meant to protect the economy from the coronavirus outbreak. It is expected to do so again next week, as the stock market continues to spiral.
Given the pandemic and the consistently low inflation even before the outbreak, some economists say the Fed could even lower its benchmark short-term rate – which influences consumer and business loans from mortgages to credit cards and home equity lines of credit – close to 0%. The rate is currently between 1% and 1.25%.
The first known U.S. coronavirus case was announced on Jan. 21 in Washington state. As of Thursday morning, there are more than 1,300 cases across the country, according to a Johns Hopkins University tracker.
Josh Bivens, research director at the nonprofit think tank Economic Policy Institute, criticized President Donald Trump’s proposal for payroll tax cuts to help address the economic fallout from the outbreak. He instead suggested tax credits for employers.
“Unconditional tax cuts for employers are a terrible policy response to the economic fallout of COVID-19,” he wrote. “But employer tax credits that are tied to the provision of specific benefits for workers can be a useful way to deliver emergency help. In the long run, key benefits like paid sick leave and strong unemployment insurance should not rest on employer tax credits, but these credits might be the best way to deliver emergency benefits right now.”
Bivens said a payroll tax cut “is poorly targeted and sends lots of money to high-income households.”
“A COVID-19 recession is laser-targeted at sectors with lots of low-wage workers, and the response should be too,” he said.
On Wednesday, the Labor Department reported that the consumer price index – another measure of inflation that tracks changes in what American shoppers pay for a wide range of products – rose just 0.1% in February and 2.3% since last year. Not counting food and energy, core consumer prices increased 0.2% in February and 2.4% from the same time a year ago.