Core Inflation Drops by Most on Record in April; Consumer Prices Mark Biggest Decrease Since 2008

U.S. inflation declined last month as higher food prices were offset by lower gasoline, clothing, and transportation costs, a government report showed Tuesday, May 12. Consumer spending sank, for the most part, as efforts to slow the COVID-19 pandemic shattered the demand for many goods and services.

When compared against a month and year earlier, prices for food surged while they sank for energy. Stripping food and energy, core prices logged their biggest monthly decline on record in April.

U.S. consumer prices dropped 0.8% in April, their largest monthly decline since December 2008, after falling 0.4% in March, the Labor Department said in its monthly report on the Consumer Price Index (CPI). The CPI is a broad measure of what Americans pay for everyday items ranging from coffee to cars.

"The consumer price index numbers are just frightening," Claudia Sahm, a former Fed economist who is now director of macroeconomic policy at the Washington Center for Equitable Growth, said on Bloomberg Radio. "I am very worried that we are falling into a deflationary spiral."

Sustained deflation, a decrease in the average price of goods and services, can cause production cuts and trigger payroll reductions and lay-offs.

Prices at the pump tumbled 20.6% last month after falling 10.5% in March. In the longer haul, gasoline prices plummeted 32% from a year ago. The broader index for energy, which combines items like gasoline, electricity and fuel oil, dropped 10.1% in April compared to its 5.8% decline in March. Energy prices year-over-year declined 17.7%.

Overall prices for food surged 1.5% for the month compared to 0.3% in March. Food prices increased 3.5% year-on-year, their biggest 12-month increase since February 2012. The monthly index for food prices at home jumped 2.6%.

"The increase was broad-based, with all six major grocery store food groups increasing at least 1.5 percent over the month," the Labor Department’s report said.

Excluding the more volatile food and energy components, so-called core consumer prices fell 0.4% in April, marking only their second step backwards since January 2010 with their 0.1% dip in March being the first decline since that time.

The government’s report noted that the figure for April was "the largest monthly decline in the history of the series, which dates to 1957."

Shelter or housing costs registered flat for a second straight month, while the year-over-year level registered 2.6% higher. Components of shelter include pricing items like rent for apartments, rental equivalence, lodging away from home such as hotels and motels, and housing at schools. The index accounts for about one-third of the entire CPI.

In the headline figure, U.S. inflation increased 0.3% for the 12 months ending April, the smallest 12-month climb since October 2015 and compared to 1.5% previously.

Core inflation rose 1.4% over the last 12 months, its smallest increase since April 2011 and against the previous 2.1% increase. This core, "all items less food and energy" index is one of the benchmark inflation rates monitored by the Federal Open Market Committee (FOMC) as it helps the central bank decide where to set its key interest rate.

"The Federal Reserve should be more worried about deflation, when prices are falling broadly in the economy, rather than inflation, when prices are rising. If deflation becomes embedded in the economy, it can be difficult to uproot," CNBC quoted Gus Faucher, chief economist at PNC. "If prices are falling, consumers and businesses may wait to make purchases, assuming that prices will be even lower in the future; this can exacerbate economic downturns."

The following table of key inflation figures is for the last seven months through April, as published by the U.S. Labor Department’s Bureau of Labor Statistics (www.bls.gov/cpi) on May 12, 2020. To index the data each month, the BLS monitors the prices of about 80,000 consumer goods and services from around the nation. All monthly and annual pricing changes are in percentages.

October 2019 to April 2020 Consumer Prices – Gains & Losses in Percent

  Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 April 2020 12 Month
All items 0.2 0.2 0.2 0.1 0.1 -0.4 -0.8 0.3
  Food 0.2 0.1 0.2 0.2 0.4 0.3 1.5 3.5
    Food at home 0.2 0.1 .0 0.1 0.5 0.5 2.6 4.1
    Food away from home 0.2 0.2 0.3 0.4 0.2 0.2 0.1 2.8
  Energy 1.7 0.8 1.6 -0.7 -2.0 -5.8 -10.1 -17.7
    Energy commodities 2.6 1.2 3.0 -1.6 -3.5 -10.4 -20.0 -31.4
      Gasoline (all types) 2.7 1.2 3.1 -1.6 -3.4 -10.5 -20.6 -32.0
      Fuel oil 1.1 1.0 1.1 -0.4 -8.5 -13.7 -15.6 -33.2
    Energy services 0.7 0.2 -0.2 0.6 -0.3 -0.5 0.1 -0.2
      Electricity 0.6 0.2 -0.2 0.4 -0.1 -0.2 0.1 0.2
      Utility (piped) gas service 1.2 0.5 -0.5 1.0 -0.9 -1.4 0.2 -1.9
  All items less food, energy 0.1 0.2 0.1 0.2 0.2 -0.1 -0.4 1.4
    Commodities less food, energy -0.4 -0.1 .0 .0 0.2 -0.3 -0.7 -0.9
      New vehicles -0.1 -0.1 0.1 .0 0.1 -0.4 .0 -0.6
      Used cars and trucks -1.2 -0.7 -0.4 -1.2 0.4 0.8 -0.4 -0.7
      Apparel -1.7 0.6 0.1 0.7 0.4 -2.0 -4.7 -5.7
      Medical care 1.0 .0 1.0 -0.6 -0.6 .0 -0.1 0.7
    Services less energy 0.3 0.3 0.2 0.3 0.2 .0 -0.4 2.2
      Shelter 0.1 0.3 0.2 0.4 0.3 .0 .0 2.6
      Transportation 0.1 .0 -0.1 0.3 0.3 -1.9 -4.7 -5.5
      Medical care 0.8 0.4 0.3 0.3 0.3 0.5 0.5 5.8

 

The BLS tends to release inflation data around the middle of a month based on consumer prices surveyed in the previous month. The Consumer Price Index (CPI) for May and the latest annual period become public on June 10, 2020.

CPI data is used in calculating inflation rates and in this site’s U.S. inflation calculator. The US Inflation Calculator shows cumulative inflation and the change in buying power of the U.S. dollar over time.

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