U.S. consumer prices fell by the most in more than five years in March as the coronavirus pandemic pummeled demand, fueling concerns that the economy is heading toward deflation.
The Labor Department reported Friday that the consumer price index dropped 0.4% last month amid a sharp decline in the cost of gasoline and record decreases in hotel accommodation, apparel and airline ticket prices.
The decline in the CPI was the largest since January 2015 and was slightly below economists’ estimates of a 0.3% slide. Prices had gone up 0.1% in February before the coronavirus crisis escalated.
In the 12 months through March, the CPI increased 1.5%, the smallest advance since February 2019, after accelerating 2.3% in February.
“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,” said Gregory Daco, chief U.S. economist at Oxford Economics.
Food prices increased 0.3% in March, reflecting stockpiling and hoarding by consumers, as did rents. But economists are predicting the disinflationary trend will persist for a while or even evolve into a sustained and broad decline in prices, or deflation.
“The big concern right now is deflation,” Gus Faucher, chief economist at PNC Financial, told Reuters. “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.”
According to The Wall Street Journal, supply chain disruptions could quickly ease once the coronavirus’s spread is slowed and lockdown measures are lifted but “lost income and the shock to consumer confidence could weigh on demand much longer.”
The March decline in the CPI was led by gasoline prices, which plunged 10.5%, the most since February 2016, after dropping 3.4% in February. Excluding the volatile food and energy components, the CPI dipped 0.1% in March, the first drop since January 2010.
The cost of hotel and motel accommodation tumbled a record 7.7% last month while airline fares plunged 12.6%, the biggest decline on record.
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