- Consumer prices fell 0.8% in April, the largest monthly decline since December 2008. As a result, inflation is barely in positive territory, up only 0.3% on a year-on-year (y/y) basis, down from 1.5% in March.
- A 20.6% drop in the price of gasoline in March was the largest contributor to the monthly decline in consumer prices. Energy prices as a whole were down 10.1% m/m in April, and is down 17.7% versus a year ago.
- Price pressures vanished in core inflation as well, which fell 0.4% month/month in April, the largest monthly decline in the history of the series. Core inflation is now only 1.4% on a year/year basis in April, down from 2.1% in March. That is the weakest pace for core inflation since April 2011.
- Prices fell sharply for apparel (-4.7% m/m), motor vehicle insurance (-7.2% m/m), airline fares (-15.2%) and lodging away from home (-7.1% m/m). For the first three categories, these declines were the largest in each series’ history.
- Rent and owners’ equivalent rent both increased 0.2% month/month in April. Medical care prices rose a sturdy 0.4% month/month. Prescription drug prices rose 0.6% m/m.
- Food prices were up sharply in April (+1.5% m/m), driven by higher prices at the grocery store (+2.6% m/m), which rose by the largest amount since February 1974.
- The Bureau of Labor Statistics noted significant disruption in the typical data collection process due to COVID-19. No prices were collected in person, resulting in a 20 percentage point drop in collected prices (from 86% to 66%). As a result “many indexes are based on smaller amounts of collected prices than usual and a small number of indexes that are normally published were not published this month.” Response rates were much closer to usual on the housing survey. The BLS noted that for some categories the sample collected was much lower than average, including household paper products, haircuts and other personal care services, admissions (to things like sporting events and concerts), indoor plants and flowers, and new vehicles.
Key Implications
- As Americans across the country stayed home in April, price pressures for a wide variety of goods and services fell by historic amounts. However, people who only ventured out to buy groceries and pick up prescriptions likely would not have noticed, as prices for these essentials rose. The limitations on price collection by the BLS may have biased down prices for some goods and services, where online prices were lower than the bricks and mortar options would be. However, with those traditional channels largely shuttered, the CPI would actually be a fairly realistic reflection of the consumer basket in April.
- Our latest forecast update featured a sizeable decline in economic growth in the first half of the year, and a sharp rise in unemployment. Lower inflation pressures follow from that drop in demand. For those who have raised questions about whether substantial monetary stimulus by the Federal Reserve would stoke inflation, this stimulus is required to help guard against the deflationary forces that result from the sharp drop in demand. Globally, deflationary pressures have proven more difficult to combat that inflationary ones, giving the Federal Reserve ample motive to act decisively in the face of this demand shock.
