Lowest Core Inflation on Record

This morning’s CPI report showed that consumer prices fell 0.8% in April. This is the second month in a row of deflation. Core inflation was down 0.4% which is the lowest on record (starting in 1957).

While the decline in prices was broad-based, the biggest swoons in the “core” part of the index came in apparel and transportation services, which dropped 4.7% apiece. Commodities not including food and energy fell 0.7% and medical care services prices were off 0.5%.

Used cars saw a 0.4% decline amid a slide in auto sales.

Big drops within the categories were car and truck rentals (-16.6%), airline fares (-15.2%) and men’s suits (-11.3%).

On a year-over-year basis, core CPI rose 1.4%, the smallest move since April 2011.

The danger of deflation is that it could turn into a vicious cycle of constantly lower prices. In other words, people hold off on buying things because they think prices will fall even more. As a result, businesses lower prices. And so on and so on.

Posted by on May 12th, 2020 at 10:32 am


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