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Consumer prices in the US fell 0.4% last month, according to the latest consumer price index reading from the Labor Department. The figure was slightly lower than the expected drop of 0.3%.

Demand for goods and services throughout the nation has dropped off due to coronavirus containment procedures keeping people indoors, and this has offset the increased prices in come goods due to scarcity created by disrupted supply chains. The headline figure masks more turbulent data beneath, emerging relatively flat overall.

Key Takeaways

• The CPI fell -0.4% in March vs. -0.3% expected and compared to a 0.1% gain in February.
• CPI rose 1.5% vs. 1.6% expected in the 12 months through March vs. 2.3% the month before.
• Food costs rose while gasoline, airline fares, hotel prices, and apparel costs fell.
• Core CPI dropped for the first time in over ten years.

Gasoline dropped off sharply with 10.5% decline in March, contributing to a 5.8% drop in the overall cost of energy. This marked the largest decline in energy costs since January 2015. Fuel oil costs dropped 13.7%, and natural gas fell 1.4% while electricity dropped a more modest 0.2%. Airline fares, lodging away from home, new vehicles, and apparel costs all fell due to reduced demand amid the ongoing coronavirus pandemic. Food costs rose 0.3% while food at home rose 0.5%.

 Rents rose 0.3%, offset by the 6.8% decline in lodging away from home at hotels and other paid accommodations. Airline fares fell 12.6% following a mere 0.3% drop in February. Clothing dropped 2% after four consecutive monthly increases. New vehicles ticked downward by 0.4%. Medical care costs rose 0.4% overall, although different components saw rises and falls.

Physicians’ services rose 0.3%, and hospital services rose 0.4%, while prescription drugs costs fell 0.2%. Used cars and trucks gained 0.8% overall, and insurance for vehicles rose 0.6%. Excluding the volatile components of food and energy, core-CPI fell 0.1% in March, the first decline since January 2010. Medical care, used cars and trucks, motor insurance, and education costs all rose.

#Coronavirus disinflation is underway

> CPI -0.4% March: biggest drop since Jan'15
> Core CPI -0.1%: 1st drop since Jan'10
> Gas -10.5%
> Shelter flat as home costs offset by plunging hotel costs
> Airfares -12.6%

> Headline #inflation 1.5%, from 2.3%
> Core at 2.1%, from 2.4% pic.twitter.com/VO5RZ3gTnO

— Gregory Daco (@GregDaco) April 10, 2020

Impact on Economy

The CPI report points to tame inflation that will lead to the Fed undershooting its 2% target range, as expected. With the coronavirus shutting down major portions of the US economy, the US is now entering a recession, with tens of millions of people already out of work and the rate of unemployment likely at 10% already.

Demand for goods that require physical travel will likely remain low over the next month or so as the US government attempts to flatten the curve of the coronavirus outbreak and weather the peak of infected cases which is expected to come about in mid-to-late April. 95% of Americans are now following orders to remain indoors during the crisis.

Market Reaction

Gold prices have seen a major correction in today’s session. Spot gold last traded at $1,686.57/oz, down -2.86% with a high of $1,689.07/oz and a low of $1,677.97/oz. Gold prices have been volatile in recent weeks throughout the rising global risk of the coronavirus and its disruption of major supply chains, international stock markets, and global monetary policy.

The multi-trillion dollar stimulus package introduced by the US Fed is likely to have an inflationary impact on the US dollar, strengthening the use case for gold. However, traders losing out on the stock market may be selling gold to participate in the stock market which is seeing a strong recovery despite the global economic situation.