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US Core CPI Sees Largest Drop Ever

US Consumer prices fell as expected in April, with a plunge in energy prices the key factor due to severely reduced demand for gasoline as consumers stayed off the roads, the Labor Department reported.

That was not the entire story, however, as core prices posted their largest monthly decline in history due to severely reduced demand.

Overall CPI fell by 0.8%, right on expectations. Core CPI, excluding both food and energy prices, fell 0.4% in the month, below the 0.2% decline expected.

The Bureau of Labor Statistics again noted issues with data collection due to the need to social distance and reported that they were unable to calculate some index series as a result.

Energy prices fell by 10.1%, with gasoline prices down 20.6%. Seasonal adjustment factors expect demand for gasoline to rise in April, lifting unadjusted prices. However, unadjusted energy prices fell by 8.3%, with unadjusted gasoline prices down 16.5%.

Seasonal factors are meant to anticipate normal seasonal effects. The current situation, with severely reduced driving, is not normal.

Food prices rose 1.5% in the month, with food at home prices up 2.6% and food away from home up 0.1%. Grocery store sales continued to be elevated in the month, the result of people staying home rather than eating out. Meat, poultry, fish and egg prices jumped by 4.3% in the month, one food sector that saw particularly shortages in the month due to high demand.

Within the core, there were clear signs of the COVID-19 impact. The relatively large owners’ equivalent rent category rose by 0.2% but lodging away from home prices fell by 7.1% due to the sharp drop-off in traveling in the month. Airline fares fell by 15.2%. Prices of household cleaning supplies rose further in the month, with a 4.5% jump in paper products reflecting the severe shortage of paper towels and toilet tissue. Also, apparel prices fell by 4.7% as store closings kept buyers away. Some industries have shifted to online purchases but the need to try on clothes makes the shift more complicated.

Through April, overall CPI prices were up only 0.3% from their year ago level, down sharply from the 1.5% rate in March. Prices excluding food and energy were up 1.4% year/year, down from the 2.1% gain in the previous month. The impact of business closures and widespread layoffs on consumer demand should continue to keep downward pressure on prices until activity begins to rebound.

Colin Lambert

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