The consumer price index had its largest monthly decline since 2009, the Bureau of Labor Statistics reported on Tuesday. Prices tumbled 0.8% from March to April, marking two months in a row of price dips. Consumer prices rose by 0.3% from one year ago, the smallest increase since 2011. Efforts to disrupt the spread of Covid-19 have caused businesses to shutter and demand to fall precipitously. Prices of everything from airfare to clothing slumped as a result.
The core CPI dropped by 0.4%, monthly. That index removes food and energy prices, which are the more volatile elements that get measured in the headline CPI. Both of those categories have fluctuated wildly in the past month, as we have noted here at Freight Broker Live. Even removing those two categories, core CPI saw its biggest drop since 1957 last month. Core consumer prices grew by 1.4% since March of 2019, the smallest yearly increase in a decade.
Gas prices were a major culprit in overall price decline, falling 20.6% since March. This should not come as a surprise. One theme of the past month has been serious oil price volatility, even going below zero dollars per barrel towards the end of April. Oil was not the only category to shrink, however. Plenty of other categories pulled prices down. Apparel and transportation services both declined by 4.7% last month, for example, and airfare and auto insurance each saw their largest monthly fall on record.
One category that exerted upward pressure was food. Overall, the food index rose by 2.6% in April. Meat, poultry, fish, and eggs prices expanded by 4.3%, while egg prices alone soared by 16%. Coronavirus outbreaks led meat processing facilities across the United States to close or reduce capacity. The food supply chain has been squeezed at both ends, attempting to match demand at grocery stores, while farmers are left with a glut of product that they cannot move.
One concern now is how the economy could be impacted going forward, if prices continue to fall. While lower prices might sound good right now, it could lead to a rather unpleasant downward spiral. If low demand continues to force prices down, producers may not be able to charge enough, and some will have to stop making and supplying their product. That would cause more unemployment, as businesses can no longer afford to keep everyone on payroll or even have to close altogether. From there, fewer people can afford to buy products, forcing prices down again…you get the idea. This is called deflation, and it occurred both during the Great Depression and the Great Recession of 2008-2009. I’m sure we would all prefer to not see it happen again now.