Daily Management Review

Largest Drop In Five Years In US Consumer Prices In March


Largest Drop In Five Years In US Consumer Prices In March
The spread of the novel coronavirus across the United States has suppressed demand for some goods and services which has resulted in the a drop in consumer prices by the largest level in five years in the month of March. The depressed demand had also offset the price increases for some products due to shortages because of disruptions to the supply chain. Economists are predicting further decreases in consumer prices and demand.
There was a 0.4 per cent consumer price index in March, said the Labor Department on Friday, even as there were significant drop in price of gasoline, hotel accommodation, apparel and airline tickets. The drop in consumer price index was the highest since January 2015 and was a large drop compared to a 0.1 per cent gain in the index the month before. The CPI has risen by 1.5 per cent in the 12 months through March after recording a 2.3 growth in February.
According to economists, the March CPI was forecast to drop by 0.3 per cent in March while noting a 1.6 per cent year on year growth.
The coronavirus pandemic had resulted in a suspension of data collection by personal visit starting March 16 which affected the March report prepared by it, the Labor Department said. the Department said that data collection last month was also impacted “by the temporary closing or limited operations of certain types of establishments,” leading to “an increase in the number of prices being considered temporarily unavailable and imputed.”
This resulted in the calculations for CPI being made on a much smaller amount of collected prices than usual, the government said, as well as a small number of indexes were published than normal for the month of March.
Almost all states and local governments of the United States have imposed strict restrictions on movement of people as well as on non-essential businesses resulting in closure of restaurants, bars and other social venues in order to prevent the spread of Covid-19, the disease caused by the novel coronavirus. Retailers in clothing have been shut as well as some manufacturers while transportation majorly stayed off the road causing job losses to millions of Americans.
Further, there has been a collapse in crude prices because of a sharp global recession and an oil price war between Saudi Arabia and Russia. This development has resulted in offsetting of the price increase of products because of the disruptions in the supply chain.
The drop in the CPI for March was 0.1 per cent for the first time since March 2010 excluding the volatile food and energy components. The so-called core CPI had increased 0.2% for two straight months. The drop in prices for new motor vehicles also resulted in a drop in underlying inflation in March.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target.