Economic Report: Consumer prices post biggest decline since 2008 as coronavirus puts clamps on inflation

Economic Report

CPI shows 20% plunge in gas prices, airfares post record drop

The numbers: One thing anxious Americans don’t have to worry about as the COVID-19 pandemic shuts down large chunks of the economy is inflation. Consumer prices sank 0.8% in April, led by tumbling gasoline prices, marking the biggest decline since the 2008 Great Recession.

Economists polled by MarketWatch had also forecast an 0.8% drop.

Prices at the pump led the decline, the government said Tuesday. Stay-at-home orders kept Americans off the roads and curbed the need to fuel up. Yet prices also fell by record amounts for a variety of other goods and services as businesses cut prices in the face of waning demand.

The pace of inflation over the past 12 months slowed to 0.3% from 1.5% in March and 2.5% at the start of 2020, showing the crisis is putting severe downward pressure on prices despite an emergency infusion of $3 trillion in federal aid to support the economy.

See: MarketWatch Economic Calendar

What happened: Gas prices usually start to rise in April ahead of the busy summer driving season. Not this year. They plunged almost 21% last month owing to the pandemic and a price war between Saudi Arabia and Russia.

In many parts of the country a gallon of regular gas now costs less than $2.

A man wears a facemask while filling up his car with gas. Prices have sunk with so many Americans staying at home and driving less, tugging inflation lower.

Getty Images

Clothes, auto insurance, hotel rooms and plane tickets all showed record price drops. Passenger fares sank 15% prices as traffic at airports nose-dived more than 90%.

Prices for some goods in high demand during the crisis did show increases. The cost of groceries jumped 2.6% with Americans eating more at home.

Some goods such as beef and pork were also in short supply because of viral outbreaks at meat-packing plants. The cost of chicken surged 5.8% and beef 3.7%.

In a bit of a surprise the cost of home ownership and rent both rose 0.2%, perhaps reflecting difficulty in collecting and measuring price data during the pandemic. The decline in overall inflation would have been much deeper had the cost of shelter been flat.

Another closely watched measure of inflation that strips out food and energy fell a record 0.4% last month. It was the first back-to-back decline in the so-called core rate in 37 years.

The yearly increase in the so-called core rate tapered off to 1.4% from 2.1%.

Big picture: Inflation is falling and is unlikely to be a problem for a long time despite piles of new government spending and debt.

There’s little likelihood of too many buyers chasing too few goods — a classic sign of inflation — until the economy regains its full strength. Most economists think that day is several years away. The Federal Reserve is expected to keep its policy interest rate at or near zero until then.

Read: Why the economy’s recovery from the coronavirus is likely to be long and painful

What they are saying?: “This is a disinflationary shock,” said Aneta Markowska, chief financial economist for Jefferies Group and MarketWatch’s latest forecaster of the month.

“A surge in inflation is the least of our worries,” wrote economists Kathy Bostjancic and Gregory Daco of Oxford Economics in a note after the report.

Read:It’s ‘wishful thinking’ to believe the economy will get back to normal soon, says winner of MarketWatch Forecaster of the Month contest

Market reaction: The Dow Jones Industrial Average

and S&P 500

were set to open slightly higher in Tuesday trades.

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