Virus shutdowns erode U.S. inflation in March 2020

Agence France-Presse
Declines in sectors affected by the coronavirus outbreak fuel the drop in the United States' inflation rate

TRAVEL. American Airlines planes are seen as passengers wait at O'Hare International Airport in Chicago on January 27, 2020. File photo by Brendan Smialowski/AFP

WASHINGTON, USA – Falling gasoline, hotel, and airfare prices pushed United States inflation down in March, according to government data released on Friday, April 10, as the coronavirus outbreak kept people at home.

The Labor Department data is yet another sign of how lockdown measures to stop the spread of COVID-19 upended the economy, leading some 17 million people to lose their jobs in just 3 weeks as businesses were shuttered nationwide.

The US Congress responded by passing a massive $2.2-trillion aid package that gives cash directly to Americans, while the Federal Reserve has announced trillions of dollars in new lending programs to boost liquidity.

The consumer price index (CPI) dropped 0.4% in March, seasonally adjusted, slightly more than expected and a reversal from February, when it edged up 0.1%.

Declines in sectors predictably affected by government orders to stay home to stop the coronavirus’ spread fueled the drop in CPI.

Airline fares plunged 12.6%, lodging dropped 6.8%, and gasoline tumbled 10.5%, as slowing economic activity and a price war between Moscow and Saudi Arabia depressed prices at the pump.

The “core” price index for all items except food and energy fell 0.1%.

The food index grew a modest 0.3%, with the most growth reported in food at home, with 0.5%.

Year-on-year, the price index was up 1.5% in March, but that was smaller than February’s growth of 2.3%.

“The disinflationary impulse, along with the great disruption in economic and financial market activity, is a key reason why the Fed is unleashing vast new monetary policy stimulus,” Oxford Economics wrote in an analysis.

The virus affected the survey’s data collection itself, with the Labor Department saying business shutdowns and difficulties contacting parties normally surveyed in-person meant “many indexes are based on smaller amounts of collected prices than usual.” – Rappler.com