- All items CPI fell to 0.3% year-over-year in April
- Largest monthly decline (-0.8%) since December 2008
- Ex food and energy index posts record a monthly decline; decreases to 1.4% year over year
CPI inflation slowed sharply in April with the index for all items with the largest monthly decline since the 2008-09 recession. Lower gasoline prices (-21% m / m) were an important factor, but slower core inflation also played a role as the ex food and energy index fell 0.4% month over month in April. It is the largest decline in history dating back to 1957, reflecting (among other things) the record month’s monthly decline in clothing, motorcycle insurance and ticket prices. While prices fell for many of the things that Americans are buying less at the moment, prices of “food at home” rose at the fastest monthly pace (+ 2.6%) since the 1970s. It’s a tough pill to swallow for the tens of thousands of Americans who have lost their jobs in the last two months.
We expect inflation to fall further in the coming months at the rate expected to fall below zero (year-over-year) in Q2 and Q3. That would exceed the slowdown seen in the 2015-2016 oil price, marking the worst period of disinfection since the 2008-09 recession. Core inflation is likely to fall below 1% for the first time since the recession. Low inflation should come this year, but we think it will be a while before the Fed is able to reach its inflation target of 2% on a sustained basis. Even with a gradual reopening of the economy, which will lead to growth in the second half of the year, we expect some demand weakness to continue through 2021. period.
Note: With COVID-19 containment measures that make it difficult to collect CPI data, the BLS noted “many indices are based on smaller volumes of collected prices than usual.” The release does not separate any specific categories as they were potentially less accurate than usual.