Inflation decelerated sharply in the US last month, as the effects of coronavirus lockdown protocol and plunging oil prices took their toll across categories.
The headline index fell 0.4% MoM, the largest monthly decline since January of 2015. It rose just 1.5% YoY amid slumping energy prices, which dove the most in half a decade.
The core index rose 2.1% YoY, missing estimates.
Notably, core fell 0.1% MoM. Economists were looking for a 0.1% gain.
That means March saw the first monthly decline in core since 2010 (basically).
On the all items index, the BLS notes that “a sharp decline in the gasoline index was a major cause”.
Indeed, the gasoline index dropped the most in four years, plunging 10.4%, the third consecutive monthly decline.
The BLS also flagged predictably large decreases in the indexes for airline fares, lodging away from home, and apparel.
Specifically, airfares logged a monthly decline of 12.6%. That, folks, is the biggest crash on record.
Deflation is stalking the world economy. But market baskets are changing quickly as well. How significant are airline fares and gas prices when nobody flies or drives? Same with lodging. On the other hand, groceries at least as far as I can see are experiencing inflation. And most folks are eating at home more for example. That said, there is no doubt that there is a powerful deflationary and contractionary force out there- hence the economic packages coming out of Congress, US Treasury and Federal Reserve. THese market interventions are necessary and appropriate.
Yeah food is definitely on the uptick especially basics like eggs, butter, flour and meat. I’ve heard restaurants in some areas are selling their ingredients direct to consumers as they are still being allocated their usual quantities. So much of the supply chain is made for our usual behaviors there isn’t much slack for a massive shift and it isn’t flexible. Deflation is certainly going to be the dominant theme though unless we get some serious cash flowing. I suspect anything less than a total consumer debt holiday/monetization as well as student loan forgiveness would doom this economy to a very slow recovery no matter how much is pumped into the stock market. Unless of course the FED also starts buying products and shoving them into warehouses too. The sooner we get a 2k per month UBI going the better. The sooner we nationalize healthcare the better. If millions of people start defaulting all at once it’s going to be way more traumatic to the system. We need mortgage deferments not this current forbearance crap, who loses their job then 3. 6. 12 months later has all the back payments ready to get current? It’s nonsense. The economy needs a massive infusion at the bottom to compensate for decade after decade of lackluster wage growth.
Economists have various permutations of V-shape forecasts. It strikes me that few believe them. The actual data is totally meaningless for the investor. The key is the reduction in uncertainty around the virus/econ forecast. Bad is okay, not knowing is worse. Thus this is the idea that as the bad becomes known, uncertainty decreases, which will put downward pressure on risk premium, which the Fed has already taken a machete to as they have effectively cut off half of the distribution, which is why vol is in a free fall