Deflationary Pressure: Largest Monthly Drop in the “Core” CPI in April


The CPI declined for the second straight month and the “core” CPI posted the largest monthly drop in the history of data series. Like many other economic indicators, the recent declines in the CPI and the “core” CPI reflected economic weakness associated with the COVID-19 pandemic.

The Consumer Price Index (CPI), released by the Bureau of Labor Statistics (BLS), declined by 0.8% in April on a seasonally adjusted basis, following a decline of 0.4% in March. It was the largest monthly decline in the CPI since December 2008. Excluding the volatile food and energy components, the “core” CPI declined by 0.4% in April, the largest monthly decline in the history of the data series back to 1957. This monthly decline in the “core” CPI was contributed by declines in multiple indexes, such as the indexes for apparel (-4.7%), motor vehicle insurance (-7.2%), airline fares (-15.2%), lodging away from home (-7.1%), used cars and trucks (-0.4%) and recreation (-0.2%). Meanwhile, the index for shelter remained unchanged in April for the second month. The indexes for medical care services rose by 0.5%.

In April, the price index for a broad set of energy sources dropped by 10.1%, marking the fourth consecutive month of declines. It is the biggest drop since November 2008 when energy prices fell by 18.0%. The gasoline index and the fuel oil index, the major components of energy commodities, declined by 20.6% and 15.6% over the month. Meanwhile, the electricity index and the index for utility gas service rose slightly by 0.1% and 0.2%, respectively.

While the “core” CPI and energy prices declined in April reflecting broader deflationary pressure, the food index increased by 1.5%. It was the fastest growth rate since January 1990. The indexes for food at home and food away from home increased amid the COVID-19 pandemic.

Over the past twelve months, on a not seasonally adjusted basis, the CPI rose by 0.3% in April, following a 1.5% increase in March. Meanwhile, the “core” CPI increased by 1.4% over the past twelve months, slower than a 2.1% increase in March. The food index rose by 3.5%, and the energy index declined by 17.7% over the past twelve months.

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