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United States Inflation March 2020

United States: Inflation weakens to over one-year low in March amid Covid-19 demand collapse

Consumer prices fell 0.4% over the previous month in March, contrasting February’s 0.1% rise and marking the largest monthly decline in prices since January 2015. The result came in below market expectations of a 0.3% drop. The sharpest drop in energy prices in over five years, and lower prices for air fare, hotel lodging, and apparel underpinned the headline drop. Conversely, prices for food and alcoholic beverages shot up in the month. Core consumer prices—which exclude volatile items such as food and energy—fell 0.1% in March, which was the first monthly decline in over 10 years (February: +0.2% month-on-month).

Inflation decelerated to an over one-year low of 1.5% in March from 2.3% in February, and came in a notch below market expectations of 1.6% inflation. Core inflation edged down to 2.1% from 2.4%. The core personal consumption expenditures price index—a gauge of household spending closely tracked by the Fed—rose to 1.8% in February, the latest month for which data is available, from 1.6% in January and continuing to fluctuate below the Fed’s 2.0% target.

March’s inflation data confirms the Covid-19 crisis has been largely disinflationary in nature as the demand shock has outweighed upside pressure from disrupted supply chains. This suggests inflation could weaken further in the months ahead on significant slack in the economy.

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