The Core Consumer Price Index, a government metric that tracks prices of goods excluding food and fuel, shows a record-breaking drop in prices, reflecting the economic slowdown wrought by the pandemic, said Bloomberg. The figure shows that average prices have fallen by 0.4 percent from March, which itself saw a 0.1 percent decrease. While these numbers may not seem impressive, Bloomberg noted that this is the biggest drop since 1957. If we include food and fuel, then prices overall declined by 0.8 percent, driven by the precipitous drop in gas prices, which more than offset the 2.6 percent increase in food prices, an increase not seen since 1974.

Beyond people just staying home, another major driver is that Americans, increasingly out of work, are curtailing purchases and saving money: The Bureau of Economic Analysis reported that the savings rate (the percentage of people's incomes left after they pay taxes and spend money) has been growing quickly, going from 7.7 percent in January to 8 percent in February and then 13 percent in March.

This means that, rather than Weimar-esque hyper-inflation, the danger right now is actually deflation. This may seen counterintuitive at first, given the trillions of dollars that policy makers have pumped into the global economy over the past few weeks. Inflation is generally understood to be caused by too many dollars chasing too few goods, thus leading to price increases as businesses adjust to the increased money supply, which serves to lower the overall spending power of an individual dollar. One might think that the CARES Act stimulus, combined with the Fed's recent lending actions, would have served to increase inflation throughout the economy, but clearly this has failed to happen. This is likely because while trillions of dollars are flowing into the economy, people need to actually spend those dollars to increase inflation; since more people are opting to save their money instead, this means despite the increased money supply, prices are actually edging lower.

Intuitively it's hard to see why this is a problem. More savings, lower prices, and a dollar that goes further than before all seem like good things at first glance. The problem comes when the economy tips into a deflationary spiral, where price decreases prompt businesses to cut both production and staff, which means there's less money flowing through the economy, which causes prices to fall even further, prompting more cuts to staff and production. On the consumer side, meanwhile, people eventually begin buying less because they anticipate further price decreases in the future; for example, why buy a new car for $20,000 when you know that in a month it will be $15,000? But then, the next month, you're faced with the new question of why buy that car for $15,000 when you know it will be $10,000 the following month? So, basically, consumer spending plummets.

For an example of what this might look like, one could take a look at Japan, which has been struggling with deflation since the 1990s, leading to what is commonly known as the country's "Lost Decade" of economic stagnation. This period saw hiring rates, especially among young people, fall dramatically; a 5 percent decrease in wages; and the loss of almost a trillion dollars worth of GDP between 1995 and 2000. While the lost decade technically ended in 2002, deflation has continued to bedevil the Japanese economy to this very day. This is despite a boatload of stimulus measures meant to encourage inflation and pump money into the economy, all of which have largely failed.

While Japan is an extreme example, it was actually but one of many countries that have injected huge amounts of cash into their economies with little effect on inflation, including the United States. Economists have actually been mulling over this question for the past decade. Much as is the case now, the 2008 financial crisis saw a flood of stimulus cash enter the economy, which still failed to increase inflation by a significant amount. This is strongly contrary to conventional economic wisdom, leading to various theories as to why the 2008 bailout defied known fundamentals. The St. Louis Federal Reserve in 2018 theorized that it might be technology, globalization or an aging workforce. Regardless of the reason, however, inflation remained stubbornly low throughout the past 10 years, the economy seemingly able to digest all stimulus measures with little need to raise prices.

Which brings us to now. Given the novelty of this situation in the United States, it remains to be seen whether this is just a slight blip or a sign of a lost decade of its own.

Stocks for the most part were not affected by this news. The Wall Street Journal reported that the Dow Jones Industrial Average, as of 12:01 p.m.,was up by 60 points, while the S&P 500 had advanced 0.1 percent and the Nasdaq grew 0.3 percent. The Journal says this is largely because of the Fed's announcement that it soon begin its long-awaited corporate debt purchases.