economy Markets

Core Prices Fall Most In History While Cost Of Groceries Jumps Most In 46 Years

Is coronavirus a deflationary supernova or just a recipe for the return of inflation?

Inflation in the US decelerated more than expected in April, drawing a bright, red line under the deflationary impulse from COVID-19. Headline CPI dropped 0.8% MoM, double March's sequential drop, but in line with expectations. That is the largest monthly decline since December 2008. Year-on-year, the headline gauge rose just 0.3% in April, less than the expected 0.4% print. Core rose 1.4%, versus an expected 1.7% gain. There's no mystery here. In the near-term, the deflationary side of the virus and attendant lockdown protocols will overwhelm any upside price impact from supply shocks in certain sectors. The 20.6% drop in the gasoline index in April contributed the most to the monthly decrease in the all items index, but as the BLS notes, indexes for apparel, motor vehicle insurance, airline fares, and lodging away from home all fell sharply too. Those drops were more than enough to overwhelm rises in the food gauges, where the index for food at home logged its biggest monthly increase since February 1974. The MoM print for core CPI was -0.4%. That is double the consensus estimate and the largest monthly drop in series history. This comes in the wake of March's -0.1%
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6 comments on “Core Prices Fall Most In History While Cost Of Groceries Jumps Most In 46 Years

  1. I bought 2 chicken breasts last week… $12.00. My grocery bill seems like it is up 50-100% these days.

  2. How to measure? Will the PCE capture spending relative to income/savings accurately going forward? It would seem that there will be wild fluctuations in the latter particularly if the GOP’s stonewalling on more fiscal relief is more an election strategy than a negotiating position.

  3. Cooking at home may not have always been cost efficient compared to fast/restaurant food for every entree item. The quality and availability has improved dramatically at the market and the restaurant. So much supply chain involved.
    The swine flue in China and the terms of the trade deal are now in direct conflict with protein pricing here at home.
    The USA packing industry is finding itself under a microscope they may not lobby away.

  4. Overhead Cost have to be up, at least for grocery stores in my area…extra sanitizations, people at doors monitoring # entering and leaving…extra clerks sanitizing all carts and baskets. Same is now for retail that is opening…curbside or appointment only, overnight sanitations… definitely adds operating expenses

  5. Tug-of-war, indeed. Gas is cheaper but I’m not driving anywhere. Airline fares and travel lodging are cheaper but I’m not traveling. I have no need for new clothes right now. BUT, 95% of all my current purchases are on groceries. My utility bills are fairly steady but still up slightly. So while I keep hearing pundits talk about deflation, the reality for millions of us is we are experiencing nothing but inflation. As soon as I’m able to move around again gas prices, airfare and travel lodging will explode higher. No winning here.

    • Chuck Grassley said people who don’t invest their money spend it all on ‘booze or women or movies’; so why should we measure the cost of anything else?

      Well…booze, women and movies are great until you end up paying for medical related expenses later on in life.

      For just one example, the old’s Medicare Part B premium is projected to go up by about $9 next year, to $153.30 a month.

      Without even factoring the Medicare Part B increase in,
      AND the expected increase in Part C premiums
      AND the expected increase in Part D premiums,
      AND the expected increased in the cost of drugs…

      As of this month’s print, the current trend towards the Social Security COLA for this year is now (-0.30%).

      In other words, with all kinds of skyrocketing costs of Medical related stuff, at this point there WILL BE NO COLA this year.

      I’m not that concerned for myself (pulling down dividends, etc.) but as you may or may not know, approximately 90% of retirees say Social Security is a MAJOR, if not the ONLY source of their income.

      I worry about those folks, I really do…

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