March US consumer prices post largest drop in five years

Washington

US CONSUMER prices fell by the most in more than five years in March, and further decreases are likely as the novel coronavirus outbreak suppresses demand for some goods and services, offsetting price increases related to shortages resulting from disruptions to the supply chain.

The Labor Department said on Friday its consumer price index (CPI) dropped 0.4 per cent last month amid a tumble in the costs of petrol, hotel accommodation, apparel and airline tickets. That was the biggest drop since January 2015 and followed a 0.1 per cent gain in February. In the 12 months till March, the CPI rose 1.5 per cent after increasing 2.3 per cent in February.

Economists polled by Reuters had forecast the CPI dropping 0.3 per cent in March and climbing 1.6 per cent year on year.

The Labor Department said March's CPI report had been affected by the coronavirus, with data collection by personal visit suspended on March 16. It said 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".

As a result, the government said many indexes were based on smaller amounts of collected prices than usual, and a small number of indexes that are normally published were not published in March.

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Restaurants, bars and other social venues have been shuttered, as state and local governments implemented tough measures to control the spread of Covid-19, the respiratory illness caused by the coronavirus. Clothing retailers have also closed shop as have some manufacturers, while transportation has been drastically scaled back, leaving millions unemployed.

Fears of a sharp global recession and an oil price war between Saudi Arabia and Russia have led to a collapse in crude prices. This is expected to offset price increases caused by bottlenecks in the supply chain.

Excluding the volatile food and energy components, the CPI dipped 0.1 per cent in March, the first drop since March 2010. The so-called core CPI had increased 0.2 per cent for two straight months.

Underlying inflation fell in March also as prices for new motor vehicles declined. In the 12 months till March, the core CPI rose 2.1 per cent after increasing 2.4 per cent in February. The Fed tracks the core personal consumption expenditures (PCE) price index for its 2 per cent inflation target. The core PCE price index increased 1.8 per cent on a year-on-year basis in February after rising 1.7 per cent in January. It undershot its target in 2019. With some components in the producer price index report that feed into the core PCE price index weakening in March, economists expect inflation pulled back last month.

March's core PCE price index data will be released at the end of the month. REUTERS