U.S. Annual Inflation Slows to 1.5%; Consumer Prices in March Fall Most in Five Years

United States inflation slowed greatly in March as consumer prices, with the help of the coronavirus, recorded their largest decline for a month in over five years, a government report showed Friday, April 10. Lower gasoline contributed most to the overall decline. Also impacting were pricing drops for clothing, transportation and new vehicles.

Of note, core inflation, which excludes food and energy, registered a monthly decline for the first time in over ten years.

From a year ago, energy prices fell sharply, the data shows, while food prices firmed.

U.S. consumer prices declined 0.4% in March, their biggest monthly fall since January 2015, after rising 0.1% in both February and January, 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 flour to fuel.

"A sharp decline in the gasoline index was a major cause of the monthly decrease in the seasonally adjusted all items index, with decreases in the indexes for airline fares, lodging away from home, and apparel also contributing," the Labor Department’s monthly report noted specifically.

Prices at the pump sank 10.5% last month after falling 3.4% in February. In the longer haul, gasoline prices declined 10.2% from a year ago. The broader index for energy, which combines items like gasoline, electricity and fuel oil, fell 5.8% in March after falling 2% previously. Energy prices year-over-year declined 5.7%.

"The March consumer price report underscores that the fallout from the coronavirus has had a large disinflationary effect on prices due to the large demand shock, plunge in oil prices, and stronger dollar. The disinflationary impulse, along with the great disruption in economic and financial market activity, is a key reason why the Fed is unleashing vast new monetary policy stimulus," MarketWatch quoted Gregory Daco, chief U.S. economist at Oxford Economics.

Overall prices for food increased 0.3% following their prior 0.4% pick up. Food prices increased 1.9% year-on-year.

Excluding the more volatile food and energy components, so-called core consumer prices fell 0.1% last month, their first step backwards since January 2010, after matching increases in February and January of 0.2%.

"The big concern right now is deflation," Reuters quoted Gus Faucher, chief economist at PNC Financial in Pittsburgh. "Deflation is likely to take hold over the next few months as businesses slash prices in response to much lower demand from the coronavirus outbreak and associated restrictions on movement."

What is deflation?

Shelter or housing costs registered flat from 0.3%, while the year-over-year level logged in at 3%. 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 1.5% in the 12 months ending March from 2.3% previously. In contrast, January’s inflation rate at 2.5% was the quickest since October 2018.

Core inflation climbed 2.1% over the last 12 months compared to 2.4% previously. Before then, core rates were at 2.3% for four straight months. 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 following table of key inflation figures is for the last seven months through March, as published by the U.S. Labor Department’s Bureau of Labor Statistics (www.bls.gov/cpi) on April 10, 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.

September 2019 to March 2020 Consumer Prices – Gains & Losses in Percent

  Sept 2019 Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 12 Month
All items 0.1 0.2 0.2 0.2 0.1 0.1 -0.4 1.5
  Food 0.2 0.2 0.1 0.2 0.2 0.4 0.3 1.9
    Food at home 0.1 0.2 0.1 .0 0.1 0.5 0.5 1.1
    Food away from home 0.3 0.2 0.2 0.3 0.4 0.2 0.2 3.0
  Energy -0.8 1.7 0.8 1.6 -0.7 -2.0 -5.8 -5.7
    Energy commodities -1.5 2.6 1.2 3.0 -1.6 -3.5 -10.4 -10.4
      Gasoline (all types) -1.5 2.7 1.2 3.1 -1.6 -3.4 -10.5 -10.2
      Fuel oil -0.6 1.1 1.0 1.1 -0.4 -8.5 -13.7 -20.1
    Energy services 0.1 0.7 0.2 -0.2 0.6 -0.3 -0.5 -0.5
      Electricity 0.2 0.6 0.2 -0.2 0.4 -0.1 -0.2 0.2
      Utility (piped) gas service -0.2 1.2 0.5 -0.5 1.0 -0.9 -1.4 -2.9
  All items less food, energy 0.2 0.1 0.2 0.1 0.2 0.2 -0.1 2.1
    Commodities less food, energy .0 -0.4 -0.1 .0 .0 0.2 -0.3 -0.2
      New vehicles -0.1 -0.1 -0.1 0.1 .0 0.1 -0.4 -0.4
      Used cars and trucks 0.6 -1.2 -0.7 -0.4 -1.2 0.4 0.8 0.1
      Apparel -0.3 -1.7 0.6 0.1 0.7 0.4 -2.0 -1.6
      Medical care -0.1 1.0 .0 1.0 -0.6 -0.6 .0 1.3
    Services less energy 0.2 0.3 0.3 0.2 0.3 0.2 .0 2.8
      Shelter 0.3 0.1 0.3 0.2 0.4 0.3 .0 3.0
      Transportation 0.2 0.1 .0 -0.1 0.3 0.3 -1.9 -0.7
      Medical care 0.4 0.8 0.4 0.3 0.3 0.3 0.5 5.5

 

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 April and the latest annual period become public on May 12, 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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