US consumer prices fell to a 5 year low March. This indicator is likely to decline in the future as the outbreak of the coronavirus suppresses demand for certain goods and services, offsetting the price increase associated with the deficit caused by interruptions in supply chains.
As the country is in fact in a stagnant state and the economy is rapidly shrinking amid stringent restrictive measures to control the spread of COVID-19, economists predict a period of potential deflation.
“Deflation is currently a big concern,”Gus Faucher, chief economist at PNC Financial in Pittsburgh.
“Deflation is likely to consolidate over the next few months, as companies cut prices in response to much lower demand due to the outbreak of coronavirus and the associated restrictions on movement,”Gus Faucher.
The United States Department of Labor said its CPI fell 0.4% last month amid falling prices for gasoline, hotel rooms, clothing and airline tickets. This was the biggest drop since January 2015, and in February, growth was 0.1%. In the 12 months to March, the consumer price index rose 1.5% after rising 2.3% in February.
Economists predict that the consumer price index would fall by 0.3% in March and grow by 1.6% year on year.
A general decline in prices is expected even though the Federal Reserve System (FRS) has taken emergency measures to stop the contraction in the economy. President Donald Trump signed a historic $2.3 trillion support package last month to help businesses and workers.
“The disinflationary momentum, along with a serious disruption in economic and financial activity in the market, is a key reason the Fed is releasing a huge new monetary policy incentive,”Gregory Daco, an economist at Oxford Economics.
Excluding volatile food and energy products, the consumer price index fell 0.1% in March, the first decline since January 2010. The so-called core consumer price index rose 0.2% for two consecutive months.
Core inflation fell in March also amid falling prices for new cars. In the 11 months to March, the base consumer price index rose 2.1% after rising 2.4% in February.
The Fed is tracking the base personal consumption expenditures price index (PCE) to track its inflation target of 2%.
The underlying PCE price index rose 1.8% year on year in February after rising 1.7% in January. The indicator did not reach its goal in 2019.
The main PCE price index data for March will be published at the end of the month. However, the closure of enterprises may affect the collection of inflation data in the coming months, which will make the report data unreliable.
In March, gas prices fell by 10.5%, which was the maximum decline since February 2016 after falling by 3.4% in February. Food prices rose 0.3% last month after rising 0.4% in February. Prices for food consumed at home rose by 0.5%, corresponding to an increase in February.
Clothing prices fell a record 2% last month after rising 0.4% in February. New car prices fell 0.4%, the biggest drop since April 2018.